In a note sent out to clients before the market closed Thursday, we speculated that Borland was likely to get a bid that topped its existing agreement with Micro Focus. (See the full post.) Shortly after the market closed, Borland indicated an unidentified suitor (Company A) raised its bid to $1.25 for each share of Borland, eclipsing the $1.15 per share that the boards of both Borland and Micro Focus have agreed to. Borland shareholders had been scheduled to vote on the deal, which was originally announced May 6, on July 22. The identity of Company A wasn’t revealed. In our earlier post, we noted our suspicions that the bidder might be Embarcadero Technologies, a portfolio company of Thoma Cressey Bravo. However, one informed source has subsequently told us that is not the case.
Category: Private Equity
A new bid for Borland?
Contact: Brenon Daly
Nearly a month after Micro Focus and Borland announced their planned combination, a pair of after-the-fact bidders pushed Micro Focus to reach a little deeper into its pockets for the application lifecycle management vendor. Now we’re hearing that one of the mystery suitors may well come back with a higher offer. As it stands, Borland shareholders are set to vote on Micro Focus’ bid of $1.15 in cash for each Borland share, or a total of some $92m, on July 22.
However, several sources have indicated that one unidentified party that previously floated a range of $1.10-1.20 per Borland share may well be preparing a bid that would top the existing offer from Micro Focus. The identity of that suitor has never been revealed, and is referred to as ‘Company A’ in the proxy filings. (We suspect, but have not confirmed, that Company A could be Embarcadero Technologies, which went private two years ago in a $200m buyout by Thoma Cressey Bravo. Following a split, TCB now goes by the name Thoma Bravo.) The proxy adds that Company A originally approached Borland with an unsolicited offer in June 2008, and has been more or less present during the process since then. Borland has dismissed several rounds of interest by Company A because of questions about its ability to pay for the deal.
While Company A may or may not come back with a higher offer, the other suitor that emerged after Micro Focus and Borland agreed to their deal – an unnamed private equity firm referred to as ‘Company E’ – will not be dusting off its bid, according to the proxy. Company E has never been identified, but we have a pretty strong suspicion that it could be a recently launched investment firm in the Boston area called 2SV Capital. Calls to the firm weren’t returned.
Certainly, a number of signs point to 2SV Capital as one of Borland’s mystery bidders. Two of the three partners in the firm certainly know the Borland business well, having worked together on the sale of Segue Software in early 2006 to Borland. (As we noted in a recent report on the pending sale of Borland, the Segue business is essentially the main reason why Micro Focus is interested in Borland.) 2SV Capital founder Richard Vieira, who was then working for Jefferies & Co, advised Segue, which was at the time headed up by Joe Krivickas, on the sale to Borland. (Krivickas recently joined Vieira at 2SV Capital.) If indeed 2SV Capital were interested, we suspect the buyout shop wouldn’t have needed to spend too much time on due diligence, given their understanding of the business.
The disappearing LBO
Contact: Brenon Daly
With private equity (PE) firms bidding against one another (as was the case with SumTotal Systems) and bidding against strategic buyers (as was the case with Borland), we might be tempted to think that the tech buyout barons are back. Umm, not really. So far this year, PE firms have accounted for just $3bn of the almost $53bn in announced M&A spending. (For more, see our second-quarter M&A report.)
To put that into perspective, consider that in 2006 there were nine individual transactions that topped the $3bn amount that we’ve tallied for the entire first half of this year. In 2007, there were another six LBOs that each eclipsed the aggregate PE spending so far in 2009.
Viewed on a relative basis, the diminished activity of financial buyers compared to strategic acquirers is even more dramatic. Not too long ago, buyout shops could outbid public companies simply because credit was cheap. That helped PE firms account for nearly one-quarter of every dollar spent on tech deals. The level now is closer to a nickel of every dollar.
LBOs as percent of overall tech M&A spending
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Source: The 451 M&A KnowledgeBase
Quick to offer, slow to vote
Contact: Brenon Daly
Even with the recent flurry of deal announcements, the pace of actually getting those proposed transactions in front of shareholders hasn’t necessarily followed suit. On Monday, a pair of buyers of public companies said they wouldn’t be holding votes on the proposed acquisitions, which were both announced in mid-April, until mid-July. To be sure, the anticipated three-month gap between announcing the transactions and shareholders voting on them isn’t alarmingly long. But it does continue the rather drawn-out dealmaking process that we’ve seen since the credit crisis tore apart Wall Street.
In the larger of the two announcements, Oracle said Sun Microsystems shareholders will have the opportunity to sound off on the planned $7.4bn deal on July 16. That is almost two weeks longer than it took to close its slightly larger purchase of BEA Systems last year. And if, as expected, Sun shareholders agree to the pending acquisition and Oracle closes it immediately, the time from announcement to closing would be roughly twice as long as the time for its multibillion-dollar purchase of Hyperion Solutions as well as its smaller acquisition of Stellent.
Meanwhile, Thoma Bravo, which plans to pick up Entrust, originally intended to put its $114m offer before shareholders on Monday. Instead, they will vote on the deal July 10. The delay comes despite not a single superior bid surfacing for the security company during its ‘go-shop’ period. The target said it shopped itself to 35 other potential suitors from mid-April to mid-May, but received only three non-binding offers. Entrust’s board didn’t judge any of them ‘superior’ to Thoma Bravo’s original offer. Shareholders will have their say on that in a month.
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
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Source: The 451 M&A KnowledgeBase