Dayforce's $70-Per-Share Merger Offer: A Premium or a Discount to Long-Term Value?

The proposed $70-per-share acquisition of Dayforce Inc. by Thoma Bravo has ignited a heated debate among investors and analysts. At first glance, the offer appears to reward Dayforce's shareholders with a 32% premium over its unaffected share price of $52.88 as of May 2025 and a 4% premium over its August 18 closing price of $67.36. However, a deeper dive into the company's financials, industry valuation trends, and long-term strategic potential reveals a more nuanced picture. Is this deal a fair reflection of Dayforce's value, or does it underprice the company's future?

Dayforce's Financial Strength and Strategic Position

Dayforce's Q2 2025 results underscore its dominance in the Human Capital Management (HCM) sector. The company reported $464.7 million in revenue, a 10% year-over-year increase, with recurring revenue growing 14% and professional services surging 23%. Adjusted EBITDA hit $147.2 million, translating to a 31.7% margin, while free cash flow for the first half of 2025 doubled to $106.6 million. These metrics highlight Dayforce's sticky, high-margin business model, driven by its single-data-model platform and AI integration.

The company's guidance for 2025—$1.935–1.955 billion in revenue (12–13.4% growth) and 13.5–14% free cash flow margins—further reinforces its scalability. CEO David Osset's vision of achieving $1 billion in free cash flow by 2031 is ambitious but plausible given the current trajectory.

Valuation Multiples: A Premium in Context

The $70-per-share offer values Dayforce at $11.2 billion enterprise value, or 34.92x EV/EBITDA. This is significantly higher than the median software industry multiple of 13.88x but aligns with the elevated valuations of high-growth SaaS companies. For context, peers like Paycom Software (6.5x P/S) and Paylocity (6.3x P/S) trade at similar price-to-sales ratios, though Dayforce's P/E of 224.53x is notably inflated.

Thoma Bravo's historical acquisition premiums provide additional context. The firm's $10.7 billion purchase of Anaplan in 2022 and $2.6 billion acquisition of Bottomline in 2022 suggest a pattern of paying for recurring revenue and margin expansion. Dayforce's 50.35% gross margin and 57% incremental free cash flow margin year-to-date make it an attractive target for Thoma Bravo's buyout model.

However, the offer's 31% discount to the intrinsic value estimated via discounted cash flow (DCF) analysis at $98.11 per share raises red flags. This discrepancy has fueled legal challenges alleging governance failures by Dayforce's board. Shareholders now face a dilemma: accept a cash payout at a steep discount to intrinsic value or risk prolonged litigation.

Industry Trends and Strategic Rationale

The HCM sector's Q2 2025 M&A activity remains robust, with trading multiples holding steady despite macroeconomic uncertainty. Dayforce's platform, which serves 6,984 customers and boasts a 10.4% YoY increase in recurring revenue per customer, positions it as a consolidator in a fragmented market. Thoma Bravo's acquisition strategy—targeting SaaS leaders with durable cash flows—fits Dayforce's profile perfectly.

Yet, the deal's strategic value extends beyond financials. Thoma Bravo aims to enhance Dayforce's AI capabilities and global payroll operations, aligning with the industry's shift toward automation and digital transformation. The firm's prior investments in cybersecurity and financial tech (e.g., AxiomSL, Barracuda) suggest a focus on cross-sector synergies, which could unlock Dayforce's potential in regulated industries like healthcare and government.

Investment Implications

For investors, the key question is whether the $70 offer captures Dayforce's long-term value. While the deal provides immediate liquidity, it underprices the company's growth trajectory. The DCF analysis, which assumes 13.5% EBITDA margins and 10% revenue growth through 2031, suggests a fair value of $98.11 per share—a 40% premium to the current offer.

However, the legal risks and governance concerns cannot be ignored. If the board is found to have breached fiduciary duties, the deal could face renegotiation. This uncertainty makes the stock a high-risk, high-reward proposition.

Conclusion: A Strategic Premium or a Missed Opportunity?

The $70-per-share offer reflects Thoma Bravo's confidence in Dayforce's recurring revenue model and AI-driven platform. Yet, it falls short of the company's intrinsic value, particularly given its strong free cash flow generation and market leadership. While the deal offers a safe exit for shareholders, it may undervalue Dayforce's potential to scale into a $10 billion+ enterprise by 2031.

For long-term investors, the litigation risk and governance scrutiny make holding the stock a speculative bet. However, if the deal is finalized and Dayforce's strategic initiatives materialize, the company could outperform the offer's terms. In the end, the valuation debate hinges on whether the market prioritizes immediate certainty or bets on Dayforce's ability to redefine the HCM landscape.