SonicWALL heads behind closed doors

Contact: Brenon Daly

After more than a decade as a public company, SonicWALL is set to go private in a $717m leveraged buyout (LBO) led by Thoma Bravo. Terms call for the private equity (PE) firm to pay $11.50 for each of the roughly 62 million shares outstanding for the unified threat management (UTM) vendor. That marks the highest price for SonicWALL shares since early 2002. (However, that didn’t stop several law firms from investigating a possible breach of fiduciary responsibility by SonicWALL’s board, as the ambulance chasers have done in so many other recent transactions.)

As we look at the proposed LBO, the valuation strikes us as pretty fair. Our math: while the deal carries an equity value of $717m, the net cost is much lower thanks to the profitable company’s fat treasury. SonicWALL holds $213m of cash and short-term investments, lowering the enterprise value (EV) of the planned take-private to $504m. That works out to 2.5 times the company’s sales of $200m in 2009 and 2.2x projected revenue of about $230m this year.

That valuation sits about midway between SonicWALL’s two closest rivals. Four years ago, WatchGuard Technologies went private in an LBO by Francisco Partners that valued the UTM vendor at basically 1x trailing sales, on an EV basis. Meanwhile, fellow UTM provider Fortinet, which went public last November, currently trades at slightly more than 3x trailing sales. (Again, that’s calculated on an EV basis, and without any acquisition premium for Fortinet.) SonicWALL shareholders stand to get a 28% premium on their stock, assuming the LBO closes as expected in the third quarter.