What the heck is going on at YEXT?

Deal breaks and heartaches.

I wrote about software last week in “Your King Sucks”. The key point of the piece was simply this: if your product sucks, your stock will suck. The starting point of SaaS and the anchors to SaaS-investing concepts (recurring revenue, rule of 40, “going profitable” etc.) are unreliable in a world where mediocre products can easily be replicated and competed against.

Enter Yext. Yext has what essentially amounts to an SEO product. The core product is for SMBs, priced on a per-location based (under <$1K per location) to improve visibility. Yext sees itself as the AI/search engine hall monitor; in a world where people ask LLMs. "Where is the nearest dentist that's open now and does root canals?", Yext is trying to make sure the AI gets it right for the mom & pop shops. It’s got product market fit, it’s a fragmented customer base (somewhat) and they’ve priced their product reasonably.

Unfortunately, despite the undemanding business model has sputtered. Revenue growth has flattened, and dollar net revenue retention has drifted below 100 (reflecting an inability to upsell on products/price). Most revenue came from acquisition in 2025/2026.

We’re now entering a special situation phase. Management made a buyout offer for $9/share a year ago. Now, they announce that their financing has fallen through. Two days ago, we get a press release today from the company:

NEW YORK--(BUSINESS WIRE)--Yext, Inc. (NYSE: YEXT), the leading brand visibility platform, today announced that Michael Walrath, its Chief Executive Officer and Chairman of the Board of Directors, has withdrawn his previously announced proposal to acquire all outstanding shares of the Company not already owned by him at a price of $9.00 per share in cash. Mr. Walrath informed the Board of Directors that he would not be able to obtain the necessary financing at the price set forth in his proposal. Mr. Walrath further assured the Board of Directors that he remains committed to leading Yext as its Chief Executive Officer, and the Board of Directors remains confident in Mr. Walrath’s ability to do so.

As previously announced in August 2025, Yext’s Board of Directors formed a Special Committee of independent directors to evaluate Mr. Walrath’s proposal, as well as any other strategic alternatives that may be available. In consultation with its financial and legal advisors, the Special Committee conducted a comprehensive review of a broad range of potential options to return capital to Yext’s stockholders and made recommendations to the Board of Directors.

After extensive evaluation and deliberation, the Special Committee approved a “Dutch auction” self-tender of $150 million of its common stock, with specific amount and pricing of the self-tender to be determined based on market conditions and stock prices at the time when the self-tender is launched. The self-tender is expected to commence in February 2026. Yext may draw on debt financing to fund the anticipated tender offer.

Mr. Walrath noted that, “I am very bullish on the future of the Yext business as AI continues to re-write the rules of Brand Visibility and discovery. I also believe in our global team and am excited to continue to lead the Company as it executes its strategy.”

The tender offer is expected to be subject to certain conditions, including a financing condition, each of which must be satisfied prior to the expiration time of the tender offer in order to ultimately consummate the tender offer. Further details on the self-tender will be included in filings with the SEC at the time of its commencement.

A little bit of “the lady doth protest too much” vibes from “Mr. Walrath informed the Board of Directors that he would not be able to obtain the necessary financing at the price set forth in his proposal. Mr. Walrath further assured the Board of Directors that he remains committed to leading Yext as its Chief Executive Officer, and the Board of Directors remains confident in Mr. Walrath’s ability to do so.”

What exactly are they doing? Instead of a single person buying the company via MBO, the company is using its own cash (and potentially new debt) to buy back its own shares from the public. Yext will specify a price range (e.g., $7.00 to $8.50). Shareholders then bid by telling the company how many shares they are willing to sell and at what price within that range. Yext will pick the lowest price in that range that allows them to buy $150 million worth of stock. Everyone who bid at or below that price gets paid that single clearing price.

It’s sort of an LBO now, in some sense, as they’re using their $200M LOC to do this buyback. What you’re playing for is real upside if it’s anything close to the $9/share original MBO price (currently, shares are at $5), but it’s a dodgy proposition. If we’re going back through our tender offer schema, we’ll want to look at key considerations:

• The ability and willingness of the tenderer to follow-through with cash or other securities

• A price that offers a generous IRR, particularly if there’s a lack of liquidity in the instruments

• A timeline that is reasonable and leaves little in the way of opportunity cost (i.e. forgoing a 1-12-month risk-free rate)

• Are we willing to own the shares at the current price if things go haywire?

Is this one where terminal value is eventually zero? I don’t know, it’s too hard in this environment to price a software company that’s stopped growing. I don’t think it’s worth playing this tender offer for that reason. If you’ve got a sharper pencil than I, you should make an honest effort to price out the business and make a guesstimate at terminal value. I’m not going to go there because of the debt. You could look at the chart and say $4 has support or something, but that was before this deal where they’re planning on dramatically changing the balance sheet. I am in the stay away camp.