Second Biggest All-Storage Acquisition in History

Symantec Corp. has entered into a definitive agreement to sell its information management business, known as Veritas Technologies Corporation, to an investor group led by The Carlyle Group together with GIC, Singapore’s sovereign wealth fund, and other expected co-investors for $8 billion in cash.

The transaction, which was unanimously approved by Symantec’s board of directors, is expected to close by January 1, 2016.

Upon closing of the transaction, Symantec expects to receive approximately $6.3 billion in net cash proceeds, subject to certain customary post-closing adjustments. It will take a comprehensive and disciplined approach to capital deployment focused on both returning capital to shareholders and investing in the business. The Symantec Board has authorized a $1.5 billion increase to its existing share repurchase program, bringing the total to $2.6 billion, with $2 billion expected to be returned to shareholders over the 18 month period following the close of the transaction. The board has also determined that Symantec will maintain its quarterly cash dividend of $0.15 per common share, which represents an overall increase to the company’s dividend payout ratio post-separation. Between its dividend and share repurchases, Symantec expects to return about 120% of its after-tax domestic cash proceeds from the sale to its shareholders.

Michael A. Brown, Symantec president and CEO, said: “This transaction strengthens our financial foundation, paving the way for Symantec to grow its security business and increase its lead as the world’s largest cybersecurity company. We believe the agreement with the investors, including The Carlyle Group and GIC, delivers an attractive and certain value for the Veritas business, and is in the best interests of all stakeholders.“

The Symantec board of directors explored a variety of strategic alternatives to maximize the value of Veritas. In reaching the conclusion that the sale agreement is in the best interest of Symantec shareholders, the Symantec board considered, among other things, that:

The transaction delivers and generates the best value of the Veritas business for Symantec shareholders and delivers certainty in the valuation of a standalone Veritas.
The all-cash transaction provides Symantec with significant proceeds to continue organic and inorganic investments in the rapidly growing market for security products and services, and to support its capital return initiatives through the purchase of common stock and its dividend. Symantec has returned more than $10 billion to shareholders in the past ten years and remains committed to returning significant cash to shareholders.
The increased certainty of a sale simplifies the separation process for Veritas customers, partners and employees.

John Gannon, Symantec EVP and Veritas GM, said: “Since the board first announced the separation of Veritas, we have been preparing the company to operate independently and evolving our business strategy, while continuing to deliver industry-leading solutions to our customers. We are thrilled to partner with The Carlyle Group and GIC, which have a strong track record of successfully growing businesses and share our dedication to Veritas’ strategy and success. Veritas will continue to provide next-generation information management solutions to serve the world’s largest and most complex environments, including multiple cloud deployments, managed services and on-premise infrastructure.”

The Carlyle Group has announced separately that Bill Coleman and Bill Krause will become CEO and chairman, respectively, of Veritas upon closing of the transaction.

Carlyle MDs Patrick McCarter and Cam Dyer said: “Veritas is a market innovator with global scale, an iconic brand, and significant growth potential. Bill Coleman is a proven leader whose strategic vision and strong execution skills will leverage Veritas’ new-found position as a private, stand-alone company to grow the firm and provide customers an integrated information management solution. Our significant experience investing in software businesses, as well as our extensive experience with carve-out transactions, positions us well to support Bill and the existing management team in creating value at Veritas.”

The transaction is subject to regulatory approvals and other closing conditions. BofA Merrill Lynch, Morgan Stanley & Co. LLC, UBS Investment Bank and Jefferies have agreed to provide debt financing for the transaction.

J.P. Morgan Securities LLC is serving as financial advisor to Symantec and Fenwick & West LLP and Baker & McKenzie LLP are serving as legal counsel. BofA Merrill Lynch, Morgan Stanley & Co. LLC, and UBS Investment Bank are serving as financial advisors to Carlyle and GIC. Alston & Bird LLP, Allen & Overy, Latham & Watkins LLP, and Covington & Burling LLP represented The Carlyle Group. Ropes & Gray LLP and Sidley Austin LLP represented GIC.

Comments

he acquisition of Veritas by The Carlyle Group together with GIC for $8 billion is the fifth biggest acquisition in history of the storage industry.

2001: Compaq by HP, $25,000 million

2005: Veritas by Symantec, $13,500 million

2011: Autonomy by HP, $10,300 million

1998: Digital Equipment by Compaq, $9,600 million

2015: Veritas by The Carlyle Group, $8 billion

It's even the second one if you consider acquisitions only related to storage, behind Veritas, once more, by Symantec in 2011 for $13,500 million. Furthermore, it's the biggest U.S. leveraged buyout this year.

It's also the 26th acquisition in storage this year, the biggest one being Virtustream, in cloud software and services, by EMC for $1.2 billion last May. 2015 is a quiet year in term of storage M&As as there were 72 in 2014.

The new deal was expected as Symantec put Veritas into a separate business to sell it and contacted many firms (including EMC and NetApp and several private equity firms) for several months. But the interest from potential buyers was limited because of a tax burden associated with splitting the company.

Symantec agreed to acquire Veritas, founded in 1983 and one of the more successful storage software firm with a lot of excellent engineers, for $13.5 billion in stock in 2005, expecting that the addition of security and storage will be a promising market. It was not as security products like anti-spam continue to be sold separately and encryption is a commodity and standardized algorithm directly integrated into storage by about all backup companies.

Symantec is now a security only company with $4.2 billion yearly revenue. Veritas generated $2.6 billion in sales in FY15 fiscal year, which ended in March, with operating margin of 23%, offering storage and server management software and being especially strong in backup and recovery software as well as backup appliances. 86% of Fortune 500 companies use Veritas products and services, according to the company.

Top names at Veritas are now:

CEO Bill Coleman was the founder, chairman, and CEO of BEA Systems, a software company reaching a billion dollars in revenue. He was also founder, chairman and CEO of Cassatt, an enterprise cloud software company acquired by CA in 2009. Previously he held various senior management positions at Sun Microsystems and Visicorp. For the past five years he has been a partner with Alsop Louie Partners, an early stage Silicon Valley venture capital firm.

Chairman Bill Krause is a Carlyle operating executive who previously was the chairman, president and CEO of 3Com. He also currently serves as board partner for Andreessen Horowitz and is a director of Brocade, Coherent and CommScope.

The Carlyle Group is a global alternative asset manager with $193 billion of assets under management across 128 funds and 159 fund of funds vehicles as of June 30, 2015. Carlyle's purpose is to invest wisely and create value on behalf of its investors, many of them being public pensions. It invests across four segments - corporate private equity, real assets, global market strategies and investment solutions in Africa, Asia, Australia, Europe, the Middle East, North and South America. It has expertise in industries including aerospace, defense and government services, consumer and retail, energy, financial services, healthcare, industrial, real estate, technology and business services, telecommunications and media and transportation. The Carlyle Group employs around 1,700 people in 35 offices across six continents.

GIC, a sovereign wealth fund in Singapore that is also an investor, in Carlyle Group funds.

Now the question is: will Carlyle pursues and develops Veritas, or sells it at the higher price to satisfy its investors as the acquired company is not really growing these past months having a lot of small and big aggressive competitors?