Innovative software solutions provider Exela Technologies (NASDAQ:XELA) — which specializes in business process automation (BPA) and intelligent workplace systems — recently announced that it received a proposal to buy one of its business units. In response, XELA stock popped 10% during the late morning hours. This comes at a time when XELA has struggled mightily for traction this year.
Management stated that it received a preliminary, non-binding proposal to acquire a unit that generates approximately $200 million in revenue. Before negotiations can move forward, the deal aligns with certain conditions including due diligence. Further, Exela “is in active discussions with several counter-parties about additional acquisition proposals,” per its press release.
Moving forward, Exela’s board of directors will carefully review the proposal. To be clear, no assurances exist that “any definitive agreement will be executed or that a transaction will be approved or consummated.”
Earlier, on June 6, 2022, Exela announced its strategic plans to offer several standalone assets for sale. This is part of a “broader mandate to maximize shareholder value, including further reduction, exchange of debt, lowering its overall annual interest expense and/or repurchasing common stock.” At the time, XELA stock did not respond positively to the disclosure.
While the news is inherently exciting for both stakeholders and prospective investors, some factors must be kept in mind.
XELA Stock Fights Against Broader Headwinds
Even with the latest swing northward, XELA stock has seen far better days. In this year alone (and inclusive of today’s bump), shares have hemorrhaged nearly 89% of market value. Over the trailing five-year period, XELA is down more than 99%.
Indeed, on July 14, 2017, the market priced XELA at just below $25. Today, those same shares are worth a dime.
More importantly, Exela has failed to spark meaningful momentum in its financial performances. In 2021, at a time when many technology firms posted year-over-year increases in revenue, Exela slipped from 2020 comparisons, posting $1.17 billion in sales versus $1.29 billion. Based on the performance of XELA stock, Wall Street took a dim view of the results.
Additionally, net loss in the first quarter of 2022 was $57 million, widening from the net loss of $39 million in the year-ago level. Also, free cash flow on an annual basis has been negative since 2018. Essentially, the announced proposal couldn’t have come soon enough for XELA stock.
BPA Is Still Relevant
As management dissects the proposal for its business unit, investors will be curious regarding its longer-term strategies. According to MarketsAndMarkets.com, experts anticipate that the global BPA market will grow from $9.8 billion in 2020 to $19.6 billion by 2026.
If so, such an expansion will equate to a compound annual growth rate of 12.2% during the forecast period. However, bullishness in the underlying industry doesn’t always translate to optimism for sector participants, a framework that prospective investors of XELA stock must keep in mind.
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On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.