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.

NEW YORK (TheStreet) -- Analysts agreed the acquisition of Blue Coat Systems (BCSI) is a unique situation, and not the start of a mergers and acquisitions wave in the space.

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.

Blue Coat Systems is viewed on Wall Street as a special case, as it has had declining revenue for the past four quarters, new management, and an activist investor, Elliott Associates, which potentially drove the sale.

Elliott Associates owned nearly 4.4 million shares, or 9.9% of the stock, according to a Securities and Exchange Commission filing. Thoma Bravo had no comment when asked if Elliott Associates had played a role in getting the company acquired.

Noble Financial Capital Markets analyst Gary Spivak said shareholders should be delighted to get this price.

"Blue Coat has faced a number of issues, but have not adequately addressed them," Spivak said. He rates the stock a hold.

Spivak said Websense (WBSN) is a company that could potentially be an acquisition target for someone who thinks he could do a better job than current management.

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

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