Clearwater Analytics Holdings, Inc.   CWAN    $14.00-$16.00 30.0 million shares Underwriters: Goldman Sachs, J.P. Morgan, Morgan Stanley, Credit Suisse, RBC Capital, Wells Fargo Securities, Oppenheimer & Co., Piper Sandler, William Blair   Co-Managers: BNP PARIBAS, D.A. Davidson & Co., AmeriVet Securities, Loop Capital Markets, Penserra Securities LLC, R. Seelaus & Co., Siebert Williams Shank Proposed trade date of 9/24  Clearwater brings transparency to the opaque world of investment accounting and analytics with what they believe is the industry’s most trusted and innovative single instance, multi-tenant technology platform.

Clearwater Analytics Holdings, Inc.   CWAN

• 30,000,000 shares to be offered between $14.00 and $16.00 per share
• Underwriters: Goldman Sachs, J.P. Morgan, Morgan Stanley, Credit Suisse, RBC Capital, Wells Fargo Securities, Oppenheimer & Co., Piper Sandler, William Blair Co-Managers: BNP PARIBAS, D.A. Davidson & Co., AmeriVet Securities, Loop Capital Markets, Penserra Securities LLC, R. Seelaus & Co., Siebert Williams Shank
• Proposed trade date of 9/24
• Rating = 3

Click here to view the prospectus.

https://www.sec.gov/Archives/edgar/data/1866368/000119312521272296/d179113ds1a.htm

Company Overview

Clearwater brings transparency to the opaque world of investment accounting and analytics with what they believe is the industry’s most trusted and innovative single instance, multi-tenant technology platform. Their cloud-native software allows clients to radically simplify their investment accounting operations, enabling them to focus on higher-value business functions such as asset allocation strategy and investment selection. Their platform provides comprehensive accounting, data and advanced analytics as well as highly-configurable reporting for global investment assets daily or on-demand, instead of weekly or monthly. They give their clients confidence that they are making the most informed decisions about investment performance, regulatory compliance and risk.

They provide investment accounting and reporting, performance measurement, compliance monitoring and risk analytics solutions for asset managers, insurance companies and large corporations. Every day, Clearwater’s powerful platform aggregates and normalizes data on over $5.6 trillion of global invested assets for over 1,000 clients. They bring modern software to an industry that has long been dominated by difficult-to-use, high cost legacy technologies and processes, which often lack data integrity and traceability, and often require significant manual intervention. The strength of their platform is demonstrated by their approximately 80% win rate for new clients over the prior four years in deals that reached the proposal stage.

The markets they serve are highly complex and changing rapidly. All asset owners and asset managers need timely, accurate and comprehensive information about their investment portfolios in order to effectively make capital allocation decisions, manage risk, measure performance, comply with regulations and communicate to various stakeholders internally and externally. This requires organizations to have a comprehensive, global view of their investment portfolio. A partial view of one asset class or one reporting regime is ineffective: delivering analysis on 95% of the portfolio is inadequate because, more often than not, the opaque final 5% of the portfolio creates disproportionate risk. A single client can invest in over 60 different asset classes, hold assets in over 40 different currencies, be governed by more than 10 accounting regimes and hold positions representing thousands of individual tax lots. These clients often have separate accounting, reporting, performance, compliance and risk management products for each asset class and each country. Furthermore, clients frequently require large teams of people to manually review, compare and enter data, correct errors and build custom reports across multiple disparate systems and spreadsheets. Their platform provides their clients with a single consolidated and transparent view of investment data and analytics.

They believe that client demand for Clearwater’s offering continues to grow not only in the United States, but also in financial centers around the world. Prior to 2008, institutions often invested in a narrower range of asset classes for which legacy solutions may have been able to provide adequate accounting, performance measurement, compliance monitoring and risk analytics

They allow their clients to replace these legacy systems with modern cloud-native software. Their platform helps clients reduce cost, time, errors and risk and allows them to reallocate resources to other value-creating activities. Their software aggregates, reconciles and validates data from more than 2,500 daily data feeds and more than four million securities that have been modeled across multiple currencies, asset classes and countries. This cleansed and validated data runs through their proprietary accounting, performance, compliance and risk solutions to provide clients with powerful analytics and daily or on-demand configurable reporting. They offer multi-asset class, multi-basis, multi-currency accounting and analytics that provide clients with a comprehensive view of their holdings and related performance. This allows their clients to make better, more timely decisions about their investment portfolios.

Clearwater benefits from powerful network effects. With their single instance, multi-tenant architecture, every client, whether new or existing, enriches their global data set by making it more complete and accurate. Their software continually sources, ingests, models, reconciles and validates the terms, conditions and features of every investment security held by all of their clients. This continuous process helps to create a single repository of comprehensive, accurate investment data (often referred to within the industry as a “Golden Copy” of data) that benefits all their clients to the extent they otherwise have rights to the data. Through this continuous process, they are able to identify and adjudicate data discrepancies that otherwise could introduce error and risk into their clients’ investment portfolios. They believe that a meaningful competitive advantage of this network effect is that they are increasingly seen as the best and most accurate source of investment accounting data and analytics in the industry.

They have a 100% recurring revenue model. They charge their clients a fee that is primarily based on the amount of assets they manage on their platform, subject to contracted minimums. A majority of the assets on their platform are high-grade fixed income assets, leading to very low levels of volatility and highly predictable revenue streams. When applicable, they charge additional transaction fees for certain complex asset classes (e.g., derivatives and other financial instruments).

IPO Detail

This is the initial public offering of Clearwater Analytics Holdings, Inc. and no public market currently exists for its common stock. Clearwater Analytics Holdings, Inc. is offering30,000,000 shares of common stock as described in the prospectus. The company expects the initial public offering price of its common stock to be between $14.00 and $16.00 per share. The company has applied to list its common stock on the New York Stock Exchange under the symbol “CWAN.”

Only the Other Continuing Equity Owners and the Permitted Transferees of Class B common stock as described in this prospectus will be permitted to hold shares of their Class B common stock. Only the Principal Equity Owners and the permitted transferees of Class C common stock and Class D common stock as described in this prospectus will be permitted to hold shares of their Class C common stock and shares of their Class D common stock. Shares of Class B common stock are exchangeable for shares of Class A common stock only together with an equal number of LLC Interests. Shares of Class C common stock are exchangeable for shares of Class D common stock only together with an equal number of LLC Interests.

Holders of shares of their Class A common stock, Class B common stock, Class C common stock and Class D common stock will vote together as a single class on all matters presented to stockholders for their vote or approval, except as otherwise required by law or their amended and restated certificate of incorporation. Each share of their Class A common stock entitles its holders to one vote per share, each share of their Class B common stock entitles its holders to one vote per share, each share of their Class C common stock entitles its holders to ten votes per share and each share of their Class D common stock entitles its holders to ten votes per share on all matters presented to their stockholders generally. Each share of their Class C common stock and Class D common stock will automatically convert into a share of their Class B common stock and their Class A common stock, respectively, upon the earlier of (i) the date that affiliates of Welsh Carson own less than 5% of their common stock and (ii) the date that is seven years following the closing of their initial public offering

Use of Proceeds

They estimate that they will receive net proceeds from this offering of approximately $412.4 million (or $475.7 million if the underwriters exercise in full their option to purchase additional shares of Class A common stock). Clearwater Analytics Holdings, Inc. intends to use the net proceeds from this offering, together with the proceeds from the New Term Loan, to (i) purchase 30,000,000 LLC Interests (or 34,500,000 LLC Interests if the underwriters exercise in full their option to purchase additional shares of Class A common stock) from CWAN Holdings, LLC at a price per unit equal to the initial public offering price per share of Class A common stock in this offering less the underwriting discounts and commissions and (ii) repay approximately $432.7 million of outstanding borrowings under the Existing Credit Agreement and pay any associated prepayment penalties and accrued and unpaid interest to the date of repayment. They intend to use remaining proceeds, if any, for general corporate purposes to support the growth of the business. The contract interest rate on the indebtedness that they intend to repay was 7.25% annually as of June 30, 2021, and the maturity date is October 31, 2025.

Competition

Market Opportunity

They believe that Clearwater has a significant opportunity to disrupt the global investment accounting and analytics market. Their research suggests that this addressable market is an approximately $10 billion global revenue opportunity when combining Clearwater’s current solutions and client end-markets with new end-markets, geographies and products. From 2015 to 2020, the market growth rates within their current client end-markets were between 5-7% for asset management, 3-7% for insurance and 2-4% for corporations. Their clients tend to be larger entities in these end-markets and generally grow at the higher end of these ranges.

Target Markets

Pursue Strategic Partnerships and Acquisitions. They may selectively pursue partnerships and acquisitions that complement their solutions, provide them access to new markets or improve their competitive positioning within existing and new markets, or that otherwise accelerate one or more of their growth objectives. For example, they will consider partnerships and acquisitions focused on improving their technology for complex assets data and their performance and risk management offerings, as well as expansion in Europe, the Middle East and Asia.

Company's Unique Strengths

Company's Unique Risks

They have experienced rapid revenue growth over the past several years, which may be difficult to sustain, and they depend on attracting and retaining top talent to continue growing and operating their business, and if they are unable to hire, integrate, develop, motivate and retain their personnel, they may not be able to maintain or manage their growth, which could have a material adverse effect on their business, financial condition, results of operations and cash flows.

They are dependent on fees based on the value of the assets on their platform for the vast majority of their revenues, and to the extent market volatility, a downturn in economic conditions or other factors cause negative trends or fluctuations in the value of the assets on their platform, their fee-based revenue and earnings may decline.

Their clients may seek to negotiate a lower fee percentage or may cease using their services, which could limit the growth of, or decrease, their revenues.

Their business relies heavily on computer equipment, cloud-based services, electronic delivery systems, networks and telecommunications systems and infrastructure, the Internet and the information technology systems of third parties. Any failures or disruptions in any of the foregoing could result in reduced revenues, increased costs and the loss of clients and could harm their business, financial condition, reputation, and results of operations.

Because some of their sales efforts are targeted at large financial institutions, corporations and government entities, they face prolonged sales cycles, substantial upfront sales costs and less predictability in completing some of their sales. If their sales cycle lengthens, or if their upfront sales investments do not result in sufficient revenue, their results of operations may be harmed.

Disruptions, capacity limitations or interference with their use of the data centers that host their solutions and services could result in delays or outages and harm their business. They currently partially host and intend to increasingly host their cloud service from third-party data center facilities from several global locations operated by Google Cloud Computing Services. Any damage to, failure of or interference with their cloud service that is hosted by Google, or by third-party providers they currently utilize or may utilize in the future, whether as a result of their actions, actions by the third-party data centers, actions by other third parties, or acts of God, could result in interruptions in their cloud service and/or the loss of their or their clients’ data.

They may be unable to adapt to rapidly changing technology, evolving industry standards and regulatory requirements and new product and service introductions, which could result in a loss of market share.

Because their employees are geographically dispersed, they are required to comply with employment-related laws and regulations both in the United States and abroad.

They will be a holding company and their principal asset after completion of the Transactions and this offering will be their interest in CWAN Holdings, LLC and, accordingly, they will depend on distributions from CWAN Holdings, LLC to pay their taxes and expenses, including payments under the Tax Receivable Agreement and the TRA Bonus Agreements. CWAN Holdings, LLC’s ability to make such distributions may be subject to various limitations and restrictions.

Conflicts of interest could arise between their shareholders and the Continuing Equity Owners, which may impede business decisions that could benefit their shareholders. The Continuing Equity Owners, who, upon consummation of this offering, will be the only holders of LLC Interests other than them, have the right to consent to certain amendments to the LLC Agreement, as well as to certain other matters. The Continuing Equity Owners may exercise these consent rights in a manner that conflicts with the interests of their other shareholders. Circumstances may arise in the future when the interests of the Continuing Equity Owners conflict with the interests of their other shareholders, particularly in the context of acquisitions.

The Tax Receivable Agreement requires them to make cash payments to the Continuing Equity Owners and the Blocker Shareholders in respect of certain tax benefits to which they may become entitled, and they expect that the payments they will be required to make will be substantial.

In certain circumstances, CWAN Holdings, LLC will be required to make distributions to them and the Continuing Equity Owners and the distributions may be substantial.

The Principal Equity Owners will continue to have significant influence over them after this offering, including control over decisions that require the approval of stockholders, which could limit your ability to influence the outcome of matters submitted to stockholders for a vote. They are currently controlled, and after this offering is completed will continue to be controlled, by the Principal Equity Owners. Upon completion of this offering, the Principal Equity Owners will beneficially own 97.0% of the combined voting power of all of their outstanding common stock. As long as the Principal Equity Owners collectively own or control at least a majority of their outstanding voting power, they will have the ability to exercise substantial control and significant influence over their management and affairs and all corporate actions requiring stockholder approval. In addition, immediately following the offering, the Principal Equity Owners will own 18.7% of the economic interest in CWAN Holdings, LLC. Because they hold a substantial portion of their ownership interests in their business through CWAN Holdings, LLC, these existing holders of LLC Interests may have conflicting interests with holders of their Class A common stock.

Certain of their stockholders will have the right to engage or invest in the same or similar businesses as them. In the ordinary course of their business activities, the Principal Equity Owners and their respective affiliates may engage in activities where their interests conflict with their interests or those of their stockholders. Their amended and restated certificate of incorporation will provide that the Principal Equity Owners or any of their respective officers, directors, agents, stockholders, members, partners, affiliates and subsidiaries will have no duty to refrain from engaging directly or indirectly in the same or similar business activities or lines of business as them or any of their subsidiaries, even if the opportunity is one that they might reasonably have pursued or had the ability or desire to pursue if granted the opportunity to do so

They cannot predict the effect their multiple class structure may have on the trading market for their Class A common stock. They cannot predict whether their multiple class structure will result in a lower or more volatile market price of their Class A common stock or other adverse consequences. For example, certain index providers have announced restrictions on including companies with multiple class share structures in certain of their indexes. S&P, Dow Jones and FTSE Russell have each announced changes to their eligibility criteria for inclusion of shares of public companies on certain indices, including the S&P 500

Bottom Line

Their revenues increased from $168 million in the year ended December 31, 2019 to $203 million in the year ended December 31, 2020, representing an increase of 21%. For the six months ended June 30, 2020 and 2021, their revenues were $95 million and $118 million, respectively, representing year-over-year growth of 24%. They had net income of $8 million and a net loss of $44 million in the years ended December 31, 2019 and 2020, respectively, representing net income margin of 5% and net loss margin of (22%), respectively. For the six months ended June 30, 2020 and 2021, they had net income of $14 million and $3 million, representing net income margin of 14% and 3%, respectively. 

Their cloud-native software allows clients to radically simplify their investment accounting operations, enabling them to focus on higher-value business functions such as asset allocation strategy and investment selection. Their platform provides comprehensive accounting, data and advanced analytics as well as highly-configurable reporting for global investment assets daily or on-demand, instead of weekly or monthly. Every day, Clearwater’s powerful platform aggregates and normalizes data on over $5.6 trillion of global invested assets for over 1,000 clients. The strength of their platform is demonstrated by their approximately 80% win rate for new clients over the prior four years in deals that reached the proposal stage. The markets they serve are highly complex and changing rapidly. . A single client can invest in over 60 different asset classes, hold assets in over 40 different currencies, be governed by more than 10 accounting regimes and hold positions representing thousands of individual tax lots. These clients often have separate accounting, reporting, performance, compliance and risk management products for each asset class and each country. Their platform helps clients reduce cost, time, errors and risk and allows them to reallocate resources to other value-creating activities. Their software aggregates, reconciles and validates data from more than 2,500 daily data feeds and more than four million securities that have been modeled across multiple currencies, asset classes and countries. Clearwater benefits from powerful network effects. With their single instance, multi-tenant architecture, every client, whether new or existing, enriches their global data set by making it more complete and accurate. They have a 100% recurring revenue model. They charge their clients a fee that is primarily based on the amount of assets they manage on their platform, subject to contracted minimums. A majority of the assets on their platform are high-grade fixed income assets, leading to very low levels of volatility and highly predictable revenue streams. When applicable, they charge additional transaction fees for certain complex asset classes (e.g., derivatives and other financial instruments).

They believe that Clearwater has a significant opportunity to disrupt the global investment accounting and analytics market. Their research suggests that this addressable market is an approximately $10 billion global revenue opportunity when combining Clearwater’s current solutions and client end-markets with new end-markets, geographies and products. From 2015 to 2020, the market growth rates within their current client end-markets were between 5-7% for asset management, 3-7% for insurance and 2-4% for corporations. Their clients tend to be larger entities in these end-markets and generally grow at the higher end of these ranges.

They believe their culture of client success, coupled with their leading solutions, will continue to generate differentiated levels of retention for the foreseeable future and allow them to grow as their clients grow. They will continue to displace legacy products and add clients in these end-markets through their direct sales and marketing efforts and by helping their strategic asset manager clients to win new clients, which in turn brings more assets onto their platform. With new offices, leadership and sales teams now established in Europe and APAC, they are poised to reach more new clients globally moving forward. They believe there is a significant opportunity for growth by continuing to target adjacent end-markets. While they have onboarded their first clients in these end-markets and have built internal teams to service them, they do not currently derive a material amount of revenue from these end-markets. Historically, they have sold their solutions as one unified offering. As clients have continued to find innovative uses for their platform in other business functions, they expect to sell and price those newer modules separately. They may selectively pursue partnerships and acquisitions that complement their solutions, provide them access to new markets or improve their competitive positioning within existing and new markets, or that otherwise accelerate one or more of their growth objectives.

Their single instance, multi-tenant architecture allows for efficient and continuous upgrades, new features, and updates to adjust for rapidly evolving industry requirements and regulations. Each upgrade and update is made available worldwide. Clients benefit from having a “single pane of glass” through which to holistically and accurately view their entire investment portfolios, with the flexibility to respond to unique reporting challenges across different regulatory regimes. Their platform automates data aggregation, data reconciliation and data validation of each security in their clients’ investment portfolios. This allows them to deliver their clients data from a “Golden Copy” that is accurate, auditable and traceable. By eliminating the need for their clients to aggregate, reconcile and validate security data, they greatly simplify and expedite their operations, allowing them to quickly close their books, comply with regulatory reporting requirements, reduce costs and free their time to focus on managing their portfolios and performing other higher-value functions. They offer transparent, on-demand and configurable views of their clients’ portfolios, accessible anytime from anywhere. Every incremental data source from an additional client improves their global data set by making it more complete and accurate for other clients on their platform that are similarly entitled to access such data

They have experienced rapid revenue growth over the past several years, which may be difficult to sustain, and they depend on attracting and retaining top talent to continue growing and operating their business. They are dependent on fees based on the value of the assets on their platform for the vast majority of their revenues, and to the extent market volatility, a downturn in economic conditions or other factors cause negative trends or fluctuations in the value of the assets on their platform, their fee-based revenue and earnings may decline. Their clients may seek to negotiate a lower fee percentage or may cease using their services, which could limit the growth of, or decrease, their revenues. Their business relies heavily on computer equipment, cloud-based services, electronic delivery systems, networks and telecommunications systems and infrastructure, the Internet and the information technology systems of third parties. Because some of their sales efforts are targeted at large financial institutions, corporations and government entities, they face prolonged sales cycles, substantial upfront sales costs and less predictability in completing some of their sales. Disruptions, capacity limitations or interference with their use of the data centers that host their solutions and services could result in delays or outages and harm their business. They currently partially host and intend to increasingly host their cloud service from third-party data center facilities from several global locations operated by Google Cloud Computing Services. They may be unable to adapt to rapidly changing technology, evolving industry standards and regulatory requirements and new product and service introductions, which could result in a loss of market share. Because their employees are geographically dispersed, they are required to comply with employment-related laws and regulations both in the United States and abroad. They will be a holding company and their principal asset after completion of the Transactions and this offering will be their interest in CWAN Holdings, LLC and, accordingly, they will depend on distributions from CWAN Holdings, LLC to pay their taxes and expenses. The Continuing Equity Owners, who, upon consummation of this offering, will be the only holders of LLC Interests other than them, have the right to consent to certain amendments to the LLC Agreement, as well as to certain other matters. Circumstances may arise in the future when the interests of the Continuing Equity Owners conflict with the interests of their other shareholders, particularly in the context of acquisitions. The Tax Receivable Agreement requires them to make cash payments to the Continuing Equity Owners and the Blocker Shareholders in respect of certain tax benefits to which they may become entitled, and they expect that the payments they will be required to make will be substantial. In certain circumstances, CWAN Holdings, LLC will be required to make distributions to them and the Continuing Equity Owners and the distributions may be substantial. Upon completion of this offering, the Principal Equity Owners will beneficially own 97.0% of the combined voting power of all of their outstanding common stock. As long as the Principal Equity Owners collectively own or control at least a majority of their outstanding voting power, they will have the ability to exercise substantial control and significant influence over their management and affairs and all corporate actions requiring stockholder approval. In addition, immediately following the offering, the Principal Equity Owners will own 18.7% of the economic interest in CWAN Holdings, LLC. Because they hold a substantial portion of their ownership interests in their business through CWAN Holdings, LLC, these existing holders of LLC Interests may have conflicting interests with holders of their Class A common stock. Certain of their stockholders will have the right to engage or invest in the same or similar businesses as them. Certain index providers have announced restrictions on including companies with multiple class share structures in certain of their indexes. S&P, Dow Jones and FTSE Russell have each announced changes to their eligibility criteria for inclusion of shares of public companies on certain indices, including the S&P 500.