M&A Alert—June 13, 2016
Symantec acquires enterprise security provider Blue Coat Systems for $4.65B.
Author: Charlie Andre, Yi You
Transaction Size: $4.7 Billion
On June 13, 2016, Symantec (NYSE: SYMC; market cap: $11.1B) entered into a definitive agreement to acquire enterprise security provider, Blue Coat Systems, for a total consideration of $4.65B.
Blue Coat offers enterprise security products. Corporate IT systems have evolved significantly over the past decade to include internal and cloud-based applications, public and private communication networks and the proliferation of “endpoints” such as mobile phones, laptops, tablets and emerging connected devices like thermostats. Blue Coat has built a software platform, comprised of six primary capabilities, to protect these highly complex environments from cybersecurity threats and optimize their performance. Clients span a broad array of industries. Competitors include Cisco, Websense, Zscaler, FireEye, Palo Alto Networks, IBM, Microsoft, Proofpoint and McAfee.
Blue Coat Systems went public in 1999 and was subsequently taken private by Thomas Bravo in December 2011 for $1.3B (2.6x EV/LTM Revenue). The company was then acquired by Bain Capital in May 2015 for $2.4B. In early 2016, Blue Coat filed to go public again which attracted Symantec’s interest in exploring an acquisition.
Founded in 1996 in Sunnyvale, CA, Blue Coat has over 15,000 clients, including over 70% of the Fortune Global 500.
Symantec operates through two segments: Consumer Security and Enterprise Security. The Consumer Security segment offers Norton-branded services that provide multi-layer security and identity protection on desktop and mobile devices to defend against online threats to individuals, families and small businesses. The Enterprise Security segment provides threat protection products, information protection products, cyber security services, and Website security offerings. Its products protect customer data from threats, such as advanced protection threats, malicious spam and phishing attacks.
On June 10, 2016, Symantec’s stock closed at $17.30 per share for a market capitalization of $10.6B. Symantec has LTM revenues through March 30, 2016 of $3.6B and currently trades at a TEV/LTM Revenue Multiple of 2.0x and TEV/ LTM EBITDA of 8.2x.
Symantec is acquiring Blue Coat for $4.65B in an all-cash deal. Blue Coat has LTM revenues of $598.3mm, LTM EBITDA of $222.8mm.
Transaction Value: $4.65B
TEV/LTM Revenue Multiple 7.77x
TEB/ LTM EBITDA 21.1x
Comparable transactions include Cisco’s acquisition of SourceFire in July 2013 for $2.4B (10.7x TEV/LTM Rev), Oracle’s acquisition of Acme Packet in Feburary 2013 for $2.1B (6.1x TEV/LTM Rev) and Intel’s acquisition of McAfee in August 2010 for $7.68B (3.9x TEV/LTM Rev).
As part of the total transaction Bain Capital is agreeing to reinvested $750mm of the consideration received into the newly combined company. Silver Lake, a minority shareholder in Symantec, has also agreed to invest an additional $500mm in the combined company as well.
For over a decade, Symantec was a dominant provider of consumer and enterprise security. However, over the past five years, Symantec has struggled with focus and operational issues, while the aforementioned evolution in enterprise IT systems were quickly evolving. Blue Coat offers Symantec a product offering to address these massive changes.
In addition, Symantec has been actively searching for new leadership. This transaction answers that question as well with Blue Coat’s CEO Greg Clark assuming the leadership of the combined business.
Architect Partners’ Observations
During the first decade of the 2000’s, Symantec was widely admired and commanded a premium valuation. However, the past five years have been challenging with Symantec losing market share in their enterprise security business segment and being under pressure due to weakness in PC sales, which hurt their core consumer Norton AntiVirus software business. At the same time leadership challenges (four CEO’s in the past four years) and the recent reorganization and ultimate divestiture of Veritas have challenged the company. Blue Coat is an important step toward regaining momentum and clearly represents a very large bet by the Board of Directors and investor group.