Tag: Francisco Partners

Recent Blue Coat shareholders no longer in the red

Brenon Daly

Contact: Brenon Daly

Anyone who bought shares of Blue Coat Systems over the past half-year breathed a sigh of relief after the recent buyout of the old-line security vendor. Thoma Bravo’s bid of $25.81 for each share means that buyers since May are all above water. (The offer represents a 48% premium over the previous close and is almost twice the price that Blue Coat stock fetched on its own back in August.)

But there’s another longtime shareholder that’s probably plenty relieved as well: Francisco Partners. Recall that the buyout firm, which had previously invested in the company, also loaned Blue Coat $80m to help it pay for its purchase of Packeteer in 2008. Francisco took convertible notes, which came at an exercise price of $20.76. Although that was roughly where the stock was trading in the spring of 2008, it finished out the year in the single digits as the recession deepened.

More recently, Blue Coat had been trading below the exercise price for the past four months, hurt by three consecutive revenue shortfalls and turnover in the chief executive office. But with Thoma Bravo’s take-private, which is slated to close in the first quarter of 2012, Francisco Partners will pocket a tidy return. On paper, the firm will book a $19m profit on the convertible notes, equaling a roughly 25% gain. That’s certainly not the biggest gain Francisco Partners has ever put up, but given that the firm spent a fair amount of time underwater on its holding, it’s not a bad outcome at all. And it certainly beats the return from just plunking the money into the broad market, which declined about 10% over the period.

Shopping hard in the City of Light

Brenon Daly

Contact:  Brenon Daly

On its visit to Paris, Francisco Partners brought home more than just a miniature souvenir Eiffel Tower. In the past week, the buyout shop has announced not one but two $100m deals struck in the French capital. Francisco’s unusual double dip comes at a time when the dollar, which had been at multiyear highs against the euro earlier in 2010, has slumped in recent weeks. (We recently looked at the trade winds blowing across the Atlantic.)

For Francisco, the transactions would help restock its European holdings. The buyout shop sold Swiss chip company Numonyx to Micron Technology for $1.3bn in May. In its first deal, Francisco put forward a $100m offer for the Grass Valley Broadcast business, which is being divested by Paris-based Technicolor. (The actual Grass Valley Broadcast business operates in central California, an ocean away from The City of Light.) In probably the more interesting move, Francisco picked up a majority stake in on-demand email marketing company Emailvision. The purchase gave Emailvision, which was advised by Pacific Crest Securities, a fully diluted equity value of about $109m.

A PE rebound?

Brenon Daly

Contact: Brenon Daly

After the turmoil in the credit market essentially knocked PE shops out of tech M&A for much of the past two years, we’re hearing various indications that buyouts may be coming back. We recently noted the rumor in the market that in the coming weeks PE firm Francisco Partners will ink in the paperwork for a public offering for one of its portfolio companies, RedPrairie. And bankers indicate financial buyers are once again looking to add to their portfolios, rather than just support their existing investments.

Meanwhile, on the other end of the PE lifecycle, there’s also some bullishness for buyout funds from limited partners, at least according to one source. Marlin Equity Partners is said to have recently raised a $450m third fund – and even had commitments for up to $600m. Los Angeles-based Marlin, which last raised a $300m fund two years ago, didn’t return a call.

Of course, we have to look at any rebound in the overall LBO market in context. Certainly, we have seen some notable purchases this year by Symphony Technology Group, Vista Equity Partners and Thoma Bravo – as well as, of course, the pending carve-out of Skype, which is being led by Silver Lake Partners. But even with all of that, the value of tech LBOs announced so far in 2009 is only $12bn – just half the $23bn announced in the same period last year. And forget about the time when the buyout barons accounted for more that one-quarter of all tech M&A spending; so far this year, the share of PE firms of overall deal flow is just 11%.

Omniture: the optimistic opportunist

-Contact Thomas Rasmussen

After digesting its $382m double-down acquisition of competitor Visual Sciences last year, Web analytics firm Omniture is bullish on buying. At the Pacific Crest Securities conference last week, the company outlined its M&A strategy, which essentially boils down to one word: opportunistic. It tucked in its struggling competitor Mercado Software for $6.5m in November 2008, adding an estimated $12m to its top line. The company had raised $66m in venture capital over the past 10 years. Omniture told us some of Mercado’s large customers had in fact approached it to do the deal. Moreover, Omniture said its remaining privately held competitors Coremetrics and WebTrends are struggling. The company added that it’s seeing an increasing amount of their customers transition over (some even in mid-contract), and it’s ready to deal, as long as it’s at 2009-type discounts.

Not so fast, say the two firms, which we estimate ring up combined revenue of just south of $200m. WebTrends, which PE shop Francisco Partners took off of NetIQ’s books in 2005 for $94m, says that despite a shakeup in management, the company is well positioned. It cites profitability, consistent quarter-over-quarter growth, its highest revenue quarter in its history last quarter, and says it has no need for further funding from its rich backer. (Reports Thursday indicated that Francisco is set to begin raising a third fund, targeting at least $2bn.) Meanwhile, Coremetrics seems to have overindulged on venture capital, closing a $60m series E round last March, bringing its total raised to date to $111m. We tend to get skeptical when this happens, especially in this environment. However, CEO Joe Davis assured us that having shelved further funding-related expansion plans, the company has the majority of the latest round in the bank. Its January restructuring will return the company to cash-flow neutral this month, and cash-flow positive going forward, and it is on track to grow revenue 20% year over year. The CEO added, “Rumors of my death have been greatly exaggerated by my competitor.”

With more than $80m in cash and short-term investments, its profitable standing and surprisingly upbeat outlook, Omniture can certainly handle a few more tuck-ins. Will it scoop up its feisty rivals? At the moment, it certainly does not look like it. In fact, competitors Coremetrics and WebTrends, which haven’t been in the market since 2006 and 2007, respectively, say they are looking at doing some buying of their own and have the cash to do so.

Omniture M&A

Completed Target Enterprise value Revenue multiple Price per customer
November 2008 Mercado Software $6.5m 0.5x* $32,500*
January 2008 Visual Sciences $382m 5.0x $240,302
December 2007 Offermatica $65m 7.2x* $650,000

Source: The 451 M&A KnowledgeBase *451 Group estimate