Tag: Thoma Bravo

Though relatively small, Thoma Bravo’s Mediware buy signals larger trends

Ben Kolada

Contact: Ben Kolada

Although Thoma Bravo’s $195m reach for Mediware Information Systems isn’t exactly a market-moving acquisition, tech dealmakers will note that the transaction underscores a pair of larger trends in tech M&A. The deal continues the consolidation in the medical-focused IT vertical, as well as hints at the reemergence of buyout shops as volume acquirers.

Thoma Bravo is handing over $22 in cash for each share of Mediware’s stock, a 40% premium to the day-prior closing price, and the highest price Mediware’s shares have ever seen. The transaction values Mediware’s equity at $195m. However, the medical management software vendor’s $40m in cash holdings, and no debt, reduces its net cost to $155m. Using that enterprise value figure, Mediware is valued at 2.4 times trailing revenue and 8.8x trailing EBITDA.

Mediware’s sale is the latest acquisition in the rapidly consolidating medical-focused IT vertical. In July, Huntsman Gay Global Capital sold Sunquest Information Systems to Roper Industries for $1.4bn, or about 10x projected EBITDA, and One Equity Partners acquired M*Modal for an enterprise value of $1.1bn, or 2.4x trailing sales. We’ve recently noted that medical speech recognition and transcription companies in particular seem to be receiving considerable buyout interest.

While the Mediware acquisition shows the health of medical-focused tech M&A, it also points at somewhat of a reemergence of private equity firms as volume acquirers. Thoma Bravo, including its portfolio companies LANDesk and PLATO Learning, has already announced five acquisitions this year. PE firms were also especially active in August, with Carlyle Group shelling out $3.3bn for Getty Images.

PE activity also comes while some strategics are sitting on the sidelines. For instance, CA Technologies, which has historically announced about four acquisitions per year, has only announced one this year – the purchase of process automation software veteran Paragon Global Technology. The deal, announced this week, is CA’s first disclosed transaction in more than a year. Also, Symantec has been out of the market since March.

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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.

A renaissance of PE interest in Renaissance

Brenon Daly

Contact: Brenon Daly

In 2010, PLATO Learning went private in a relatively straightforward process that took just two months from Thoma Bravo’s announcement of the leveraged buyout (LBO) of the online education vendor to the close of it. Now, privately held PLATO is drawing out – and making more expensive – the LBO of fellow online education provider Renaissance Learning. PLATO has been part of a bidding war for Renaissance that has been playing out since mid-August.

In the original offer, buyout firm Permira planned to acquire Renaissance, which has been public since 1997, in a deal valued at $440m. (Somewhat unusually, terms call for Permira to pay one price for Renaissance’s common shares that trade on the Nasdaq while paying a lower price to the cofounders of the company, who control 69% of the equity.) PLATO then topped Permira’s opening bid a week later.

Earlier this week, Permira raised its offer, as did PLATO. However, the board continues to support the Permira bid – even though it values Renaissance at $16m less than the offer from PLATO. The reason? The cofounders don’t want to sell to PLATO. Other shareholders, who represent the remaining 31% of Renaissance equity, will have a chance to vote on Permira’s offer on October 17

Tripwire pulls the plug on its IPO

Brenon Daly

Contact: Brenon Daly

Almost exactly a year after Tripwire formally filed its IPO paperwork, the security vendor has opted for the other exit, a trade sale. Thoma Bravo, a buyout shop with a number of other security and management companies in its portfolio, expects to close the acquisition of Portland, Oregon-based Tripwire this month. Terms weren’t disclosed but we understand that Thoma Bravo is paying about $225m. The decision by Tripwire to sell isn’t a surprise, any more than the fact that a buyout shop is its new owner.

If it had gone ahead with its IPO, we suspect that Tripwire would have had a rough go of it as a public company. Wall Street looks for growth, and while Tripwire has put up steady growth, it hasn’t been explosive growth or particularly valuable growth, at least in the eyes of portfolio managers. In 2010, Tripwire bumped up its overall top line 16% to $86m, primarily driven by increases in maintenance revenue and, to a lesser degree, consulting work. Collectively, those lines of business, which now represent more than half of Tripwire’s total revenue, rose 25% in 2010 – three times the rather anemic growth rate of 8% in license sales. (License sales actually flatlined in both the third and fourth quarters of 2010.)

The lagging license sales certainly wouldn’t have helped the company attract interest from strategic buyers. We noted earlier that nearly four years ago Tripwire came very close to selling to BMC. Since it filed its prospectus, we’ve heard that both Quest Software and CA Technologies looked at Tripwire. Still, in our view, Tripwire has a financial profile that should fit well inside a PE portfolio: some 6,000 customers; seven consecutive years of revenue and operating income growth; a rock-steady – and growing – maintenance stream of about $40m; and roughly $10m in cash flow per year.

Do-or-die time for LANDesk divestiture

Brenon Daly

Contact: Brenon Daly

It’s do-or-die time for the LANDesk divestiture, with the period of exclusivity with the most serious bidder set to expire Friday. Buyout shop Thoma Bravo is said to be the last remaining party at the table for the systems management vendor, which Emerson Electric has been trying to shed for more than six months. The current betting is that Thoma Bravo, which has done a half-dozen deals so far this year, will not take home LANDesk.

Thoma Bravo, of course, already has a play in this market – one that it got thanks to another public company divestiture. The private equity (PE) firm picked up the IT asset management division from Macrovision (now known as Rovi) in February 2008, renaming the business Flexera Software. Flexera has since bolted on four other businesses, including the purchase of ManageSoft in May. As my colleague Dennis Callaghan has noted, the hypothetical pairing of Flexera and LANDesk would bring some overlap, but would add technology for endpoint security management, service desk, remote control, power management and application virtualization that Flexera doesn’t have on its own.

While the combination makes sense strategically, we have heard that the process is snagged financially. Several sources have indicated that the asking price for LANDesk has come down from more than $300m early in the process to $250m now. (LANDesk sold for $416m back in April 2006 to Avocent, which was subsequently acquired by Emerson.) At the current level, LANDesk would be valued at more than eight times EBITDA, according to our understanding. That might prove a little rich for Thoma Bravo.

What’s the value of advice on the Entrust LBO?

Brenon Daly

Contact: Brenon Daly

The ‘go-shop’ period at Entrust came and went a month ago, but on Friday the security vendor nonetheless got a richer offer in its three-month-old leveraged buyout. The bidder? Thoma Bravo, the same buyout shop that has had an agreement in place since April to acquire Entrust. Originally, Thoma Bravo offered $114m, or $1.85 per Entrust share, but as the company’s shareholders were set last Friday to vote on it, Thoma Bravo bumped up its bid to $124m, or $2 for each Entrust share. The buyout shop says that is its best and final offer for Entrust.

Thoma Bravo topped itself despite having Entrust’s board unanimously back the initial $1.85-per-share bid. The raise also came despite both of the main proxy advising outfits backing the original offer, which valued Entrust at less than 1x sales, on the basis of enterprise value. If shareholders had actually listened to both Glass, Lewis & Co and Proxy Governance Inc, they would have shortchanged themselves $10m. (And shareholders have already suffered enough by holding Entrust, which has basically traded down over the past four years, with only brief interruptions.)

Undoubtedly, the proxy firms will (once again) throw their support behind the new and improved buyout bid ahead of the shareholder vote, which is slated for July 28. But any endorsement sort of strains credibility given that they already backed one deal that the would-be buyer has acknowledged was too cheap.

Back to basics for PE

-Contact Thomas Rasmussen, Brenon Daly

Coming off a dealmaking binge fueled by cheap credit, private equity (PE) shops have been investing much more soberly since the debt market collapsed late last summer. Highly leveraged multibillion-dollar buyouts have gone the way of the collateralized derivatives. As financing has become much more expensive, PE shops have in turn become more price sensitive. Deals are much smaller and generally done with equity these days. The heyday of the PE buyout boom saw dollars spent on deals balloon from $56bn in 2005 to $98bn in 2006 before peaking at $118bn in 2007. Last year saw a drastic ‘normalization,’ with disclosed spending by PE firms falling three-quarters to just $26bn. Spending on buyouts has plummeted this year, with just $3bn worth of deals through the first five months of 2009.

Even as the aggregate value of LBOs has declined sharply, we would note that the volume remains steady. (The 90 PE deals announced so far this year is roughly in line with the totals for the same period in three of the past four years.) We might suggest that this indicates a return to basics for PE firms. Instead of bidding against each other in multibillion-dollar takeouts of smoothly running public companies, buyout firms are returning to more traditional targets: unloved, overlooked public companies as well as underperforming divisions of companies.

In terms of recent take-privates, we would point to Thoma Bravo’s pending $114m acquisition of Entrust, which valued the company at less than 1x sales. And looking at divestitures, we would highlight the recent buyout and subsequent sale of Autodesk’s struggling location-services business. Hale Capital Partners acquired the assets in February for a very small down payment and what we understand was a $10m backstop in case things went awry. New York City-based Hale Capital put the acquired property through a pretty serious restructuring. (The moves got the division running at what we understand was an EBITDA run-rate of $5m on approximately $20m in trailing sales.) Hale then sold the assets for $25m in cash and stock in mid-May to Telecommunications Systems following a competitive bidding process. Through the terms of the divestiture, Autodesk also had a small windfall in the sale of its former unit, pocketing an estimated $5m.

PE spending falls of a cliff

Year Average deal size (total known values/total deals)
2005 $218m
2006 $305m
2007 $395m
2008 $106m
2009 $26m

Source: The 451 M&A KnowledgeBase