DEFA14A: Adobe to Acquire Semrush for $12.00 Per Share in Cash Deal

Semrush Holdings, Inc. has entered into a definitive merger agreement to be acquired by Adobe Inc. for $12.00 per share in an all-cash transaction.

Summary

• Semrush Holdings, Inc. (the Company) has entered into an Agreement and Plan of Merger with Adobe Inc. (Adobe) and Fenway Merger Sub, Inc., a wholly-owned subsidiary of Adobe.
• Merger Sub will merge into Semrush, with Semrush surviving as a wholly-owned subsidiary of Adobe.
• Each share of Class A and Class B common stock of Semrush, issued and outstanding immediately prior to the merger's effective time, will be converted into the right to receive $12.00 in cash, without interest.
• Vested stock options and restricted stock units (RSUs) held by non-employee directors, contractors, or specified service providers will be cashed out.
• Unvested in-the-money options and other RSU awards will be assumed by Adobe and converted into Adobe restricted stock unit awards with no less favorable vesting terms.
• Performance stock unit awards (PSUs) that vest at the effective time will be cashed out based on actual performance; other PSUs will convert to time-based Adobe RSUs.
• The merger is subject to customary closing conditions, including Semrush stockholder approval, regulatory approvals (e.g., HSR Act), and the absence of a Company Material Adverse Effect.
• Semrush's Board of Directors unanimously approved the merger and recommends stockholders vote in favor.
• Certain stockholders, representing approximately 75% of the voting power, have entered into voting and support agreements to vote their shares in favor of the merger.
• A termination fee of $63,000,000 is payable by Semrush to Adobe under specified circumstances, such as a change of recommendation or termination to pursue a superior proposal.

Sentiment

Score: 8

Explanation: The unanimous board approval, strong shareholder support through voting agreements, and all-cash consideration for the merger indicate a high certainty of closing and a positive outcome for Semrush shareholders. The terms for employee equity awards also appear structured to provide value. While regulatory approvals are still a factor, the overall sentiment is highly positive for the transaction's completion.

Positives

• The all-cash consideration of $12.00 per share provides immediate liquidity and certainty of value for Semrush stockholders.
• The unanimous approval by Semrush's Board of Directors indicates a strong endorsement of the deal's fairness and benefits to stockholders.
• Voting agreements from stockholders representing approximately 75% of the voting power significantly increase the likelihood of obtaining stockholder approval, reducing transaction risk.
• Continuing employees will receive no less favorable base salary, target incentive cash compensation, and aggregate long-term incentive opportunities and employee benefits for 12 months post-merger, or benefits no less favorable than similarly situated Adobe employees.

Negatives

• Semrush will cease to be an independent publicly traded company, leading to the delisting of its Class A Common Stock from the NYSE.
• Stock options with an exercise price equal to or greater than the $12.00 merger consideration will be cancelled for no consideration.
• Semrush is subject to a $63,000,000 termination fee if the merger agreement is terminated under certain conditions, such as a change of recommendation or pursuing a superior proposal.
• The merger agreement includes customary restrictions on Semrush's business operations until closing, limiting its ability to make certain strategic decisions.

Risks

• The expected timing and likelihood of completion of the transaction, including the timing, receipt, and terms of required governmental and regulatory approvals, are uncertain.
• The possibility that Semrush's stockholders may not approve the transaction, despite the voting agreements.
• The risk that the parties may not be able to satisfy the conditions to the transaction in a timely manner or at all.
• Disruption of management time from ongoing business operations due to the transaction.
• The risk that any announcements relating to the transaction could have adverse effects on the market price of Semrush's common stock.
• The risk that the transaction and its announcement could have an adverse effect on the parties' business relationships and business generally, including the ability of Semrush to retain customers and retain and hire key personnel and maintain relationships with their suppliers and customers.
• The risk of unforeseen or unknown liabilities.
• The risk of potential litigation relating to the transaction that could be instituted against Semrush or its directors and/or officers.
• The risk associated with third-party contracts containing material consent, anti-assignment, transfer, or other provisions that may be related to the transaction which are not waived or otherwise satisfactorily resolved.
• The risk of various events that could disrupt operations, including severe weather, cybersecurity attacks, security threats, and governmental response to them, and technological changes.
• The risks of labor disputes, changes in labor costs, and labor difficulties.
• The risks resulting from other effects of industry, market, economic, legal or legislative, political or regulatory conditions outside of Semrush's control.

Future Outlook

The filing primarily outlines the terms and conditions of the merger, with general forward-looking statements indicating the expectation of consummating the transaction. It mentions the anticipated impact on demand for products, cash flow generation, improvements to products and platform, and future operating results, all contingent on the successful completion of the merger and integration into Adobe's operations.

Management Comments

• The Company Board of Directors has, by unanimous vote of all directors present, determined that the terms of this Agreement and the transactions contemplated hereby, including the Merger, are fair to, and in the best interests of, the Company and its stockholders.
• The Company Board of Directors has resolved to recommend that the Company Stockholders approve the Transactions, including the Merger, and adopt this Agreement.

Industry Context

This acquisition by Adobe, a leading software company known for its creative and digital experience products, of Semrush, a prominent digital marketing and SEO analytics platform, signifies a strategic move by Adobe to enhance its digital experience offerings. It reflects a broader industry trend of consolidation where larger tech companies integrate specialized software solutions to provide more comprehensive platforms. This could allow Adobe to offer a more integrated suite of tools for digital content creation, management, and performance analysis, strengthening its position in the competitive digital marketing and analytics space.

Management Changes

Corporate Governance

Legal Proceedings

• The risk of potential litigation relating to the transaction that could be instituted against Semrush or its directors and/or officers.
• Semrush is obligated to provide prompt notice to Adobe of any litigation brought by stockholders or purported stockholders against Semrush, its subsidiaries, directors, or officers relating to the merger or related transactions.

Related Party Transactions

• Certain stockholders of Semrush (Support Stockholders), representing approximately 75% of the voting power, have entered into Voting and Support Agreements with Adobe, agreeing to vote their shares in favor of the merger.

Stakeholder Impact

• Shareholders: Will receive $12.00 in cash per share, providing a definitive return and liquidity for their investment.
• Equity Award Holders: Outstanding equity awards will either be cashed out or converted into Adobe equity awards, ensuring continued value or immediate liquidity.
• Employees: Continuing employees will maintain comparable base salary, incentive compensation, and aggregate benefits for at least 12 months post-merger, or receive benefits no less favorable than similarly situated Adobe employees.
• Management: Current directors of Semrush will resign, and the officers and directors of Merger Sub will become the initial officers and directors of the Surviving Corporation.
• Customers, Suppliers, and Vendors: Semrush is obligated to use reasonable best efforts to preserve its relationships with these parties, aiming to minimize disruption from the transaction.

Next Steps

• Semrush will prepare and file a preliminary Proxy Statement with the SEC, followed by a definitive Proxy Statement.
• Semrush will duly call, give notice of, convene, and hold a meeting of its stockholders to seek approval of the Merger Agreement.
• The parties will work to obtain all necessary governmental and regulatory approvals, including the expiration or termination of the waiting period under the HSR Act and other Regulatory Laws.
• Adobe will file a registration statement on Form S-8 for shares of Parent Common Stock issuable with respect to the assumed equity awards.
• Semrush will purchase a six-year prepaid tail policy for directors and officers liability insurance and fiduciary liability insurance.
• Semrush will cause resignations executed by each director of the Company to be delivered to Parent, effective upon the Effective Time.
• The Class A Common Stock will be delisted from the NYSE, and its registration under the Exchange Act will be terminated at or after the Effective Time.

Key Dates

Recommendation

The all-cash offer of $12.00 per share for Semrush provides a clear and certain return for shareholders. The unanimous recommendation from Semrush's Board of Directors, coupled with voting agreements from stockholders representing approximately 75% of the voting power, significantly de-risks the shareholder approval process. While regulatory approvals are still a condition, the high level of internal support suggests a strong likelihood of the transaction closing. For investors, this presents a compelling arbitrage opportunity if Semrush's stock is trading below the $12.00 offer price, given the high certainty of the deal's completion.

Keywords

Semrush, Adobe, Merger, Acquisition, Cash Deal, Stockholder Approval, Regulatory Approval, Software as a Service, Digital Marketing, SEO, SEM, Analytics, Corporate Governance