Blue Coat Deal Won't Spark M&A Wave (Update 1)
Updated from 10:59 a.m. EST to provide comments from Orlando Bravo and Seth Boro of Thoma Bravo and updated share price.
An investor group led by Thoma Bravo announced it would be buying the Sunnyvale, Calif.-based Web security and WAN optimization company for $25.81 a share in cash, a hefty 48% premium to Thursday's closing price. Also included in the group is the Ontario Teachers' Pension Plan through its private investor department, Teachers' Private Capital.
In an email, Orlando Bravo and Seth Boro of Thoma Bravo said that the private equity firm plans to "aggressively invest in and grow the business [Blue Coat], implement our best in class operating practices, and make acquisitions."
|Blue Coat Systems was purchased at a hefty premium.|
Alex Kurtz of Sterne Agee said the purchase price for Blue Coat was a "fair valuation given the challenges that Blue Coat has faced over the past few years." "Blue Coat was a unique situation, and clearly a company with solid IP, assets and a customer base, but had run into several walls over the last few years," Kurtz said. "Blue Coat was not an accelerating growth company at this point, and the company needs to be reinvigorated for growth, and private equity allows the company to do that in a private matter." He has a neutral rating on shares. ThinkEquity analyst Rajesh Ghai doesn't believe the Blue Coat deal was indicative of more acquisitions in the space, or that it was a strategic asset to a company such as HP (HPQ), IBM (IBM) and Dell (DELL). He said this was more about activist investor Elliott shopping the company around. "I believe there will be speculation around Brocade Communications (BRCD) today because of the deal," Ghai said. Elliott is also an investor in Brocade, owning about 5.7% of the stock. Ghai said, "At two times fiscal 2011 sales, it does not sound terribly aggressive, but revenues have been declining for the past four quarters, and product revenues have been declining for the past six revenues. Private equity is really paying for the services revenue, which have been stable." Ghai has a hold rating on the stock. Blue Coat expects the transaction to close in the first calendar quarter of 2012. Blue Coat shares were rising Friday, up 44.1% to $25.18. --Written by Chris Ciaccia in New York >To follow the writer on Twitter, go to http://twitter.com/commodity_bull. >To submit a news tip, send an email to: firstname.lastname@example.org
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