Contact: Brenon Daly
More and more, the portfolios of private equity (PE) firms are looking like retirement homes for the ever-maturing tech industry. Consider Marlin Equity Partners’ proposed $891m take-private of Tellabs, announced this morning. The company has been hawking its networking equipment gear since 1975, and has seen its share of ups and down over the past four decades in business. Tellabs currently finds itself in one of those protracted ‘downs,’ having shrunk for three straight years. The leveraged buyout (LBO) reflects that, with Marlin valuing Tellabs, net of its substantial cash holding, at just 0.4x trailing sales.
By our count, the Tellabs take-private is the ninth tech LBO valued at more than $300m announced so far this year. (To be clear, that’s equity value for a full business, and excludes any pickups of businesses divested by public companies.) On average, the companies that have been erased recently from the public market by PE firms were founded in 1990. The ‘youngest’ company was founded in 1998, exactly the same year Google incorporated itself.
Looking more closely at the list of this year’s 10 take-privates, we would note that only one company actually managed to get an above-market valuation. (That would be Vista Equity Partners’ $644m acquisition of Greenway Medical Technologies, which went off at 4.7x trailing sales.) Four other companies said goodbye to Wall Street at 1x sales or lower. On average, the significant LBOs of 2013 have gotten done at a median valuation of 2.1x trailing sales, a full turn lower than the broad market multiple for the 50-largest transactions of 3x trailing sales.
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