Tim Mueller’s Transaction Analysis: New IT M&A Deals May 31

KKR Announces BMC Software Acquisition

Financial Information*

  • Transaction Value $8.3B

Transaction Facts

  • KKR & Co. (NYSE:KKR) announced this morning that it agreed to acquire BMC Software, officially acknowledging a transaction that had been speculated about and discussed over the last week.
  • This transaction, reported by Bloomberg to be valued at approximately $8.3 billion including debt, is below the $10 billion figure that had been rumored but represents the firm’s biggest acquisition since the 2008 financial crisis.
  • The transaction is expected to close in the third quarter of 2018.

Closing The Deal

  • Big Deal: Though this deal itself is no record, it illustrates a swing back to bigger leveraged buyouts across the board–fueled by a record $1 trillion in dry powder. KKR is expected to be both more aggressive and more willing to skew bigger in a larger strategic shift.
  • Spooling Up: This is the fourth $1 billion-plus technology acquisition by a buyout firm this year (following acquisitions of Mitel, VeriFone, and CommerceHub). This ties the number of such deals in all of the previous two years.
  • Seeing Runway: KKR is said to be looking to capitalize on potential go-to-market, as Bain and GGC were seen to be focused primarily on product and invested hundreds of millions of dollars in R&D and other improvement initiatives. This opens the company to organic growth–a healthy complement to the standard PE playbook of bolt-on acquisition.

For more information about this transaction, click here to read the press release and click here to read our analysis from last week when the deal was first rumored.

*Financial information from news reports.

To receive instant analysis on the day’s business news from Tim Mueller, contact [email protected]. Check out a list of diverse assets for sale on SBN’s IT M&A Marketplace powered by IT ExchangeNet here.

IT ExchangeNet is the industry-leading marketplace for matching buyers with sellers of mid-market IT businesses. Founded in 1998 by technology CEOs and M&A professionals, IT ExchangeNet is an efficient marketplace for owners of mid-market IT businesses seeking buyers or strategic partners. ExchangeNet follows a disciplined and highly targeted process, bringing buyers and sellers together to close deals with transaction values of less than $25 million.

Tim Mueller’s Transaction Analysis: New IT M&A Deals Dec. 13

Optiv to be Acquired by KKR

Financial Information*

Enterprise Value: $1.8- $1.9 billion

EV/LTM EBITDA: 1 – 13x

Transaction Facts

Private equity investor KKR (NYSE: KKR) announced recently that it was acquiring security solution provider Optiv, Inc. from fellow private equity giant The Blackstone Group (NYSE: BX). Blackstone and other investors would retain a minority stake in the business.

Financial information was not disclosed, but media sources listed the deal as close to $2 billion in value.

The transaction comes shortly after Optiv filed a Form S-1 with the SEC regarding a potential IPO on the New York Stock Exchange, where it would be listed under the ticker OPTV. In the filing, Optiv reported more than $947.3 million of revenue for 2015 and adjusted EBITDA for the same period of $97.5 million.

Leveraging Substantial Resources for Continued Growth

Following the Pattern: Optiv is today a major player in the security solutions space, due in large part to significant private equity involvement and investment. The company was initially formed through the combination of Accuvant and FishNet in early 2015, facilitated by Accuvant owner Blackstone as well as funding partners including former majority owner Sverica International and FishNet investor Investcorp.

Building Up and Building Out: Blackstone grew Optiv through a series of acquisitions, which KKR is set to continue doing using its own substantial resources. Expect Optiv to enhance its existing global presence, moving beyond its current model where it is heavily dependent on partnerships.

Focus on the Platform: By becoming a go-to global security platform, Optiv has the potential to create significant value and transform its role in the supply chain. KKR’s operational expertise and ability to aggregate customers will be key to this success.

A More Familiar Sight: When Optiv disclosed its IPO plans (and was followed in doing so by Presidio), there was much discussion regarding whether it was a sign that the historically weak IPO market was facing a rebound. Though it’s unclear whether the upcoming IPO has been canceled with this sale, acquisition by a new private equity partner is a much more familiar outcome in today’s business climate.

For more information about this transaction, click here to read the press release.

Tim Mueller was not the adviser in this transaction.

*Financial information was not disclosed, but media reports citing sources close to the transaction pegged the value at $1.8 – $1.9 billion or 11 – 13x EBITDA estimates.

To receive instant analysis on the day’s business news from Tim Mueller, contact [email protected]. Check out a list of diverse assets for sale on SBN’s IT M&A Marketplace powered by IT ExchangeNet.

IT ExchangeNet is the industry-leading marketplace for matching buyers with sellers of mid-market IT businesses. Founded in 1998 by technology CEOs and M&A professionals, IT ExchangeNet is an efficient marketplace for owners of mid-market IT businesses seeking buyers or strategic partners. ExchangeNet follows a disciplined and highly targeted process, bringing buyers and sellers together to close deals with transaction values of less than $25 million.

KKR defies market with sterling second-quarter earnings

NEW YORK, Fri Jul 27, 2012 – KKR & Co. LP bucked a declining trend among alternative asset companies to report a sterling 73.4-percent jump in quarterly earnings on Friday, driven by successful exits from private equity investments and a rise in the value of its portfolio.
Fears over the euro zone’s debt crisis and faltering global economic growth have weighed on the valuation of private equity portfolios of firms such as Blackstone Group LP and Carlyle Group LP, often mirroring stock market declines. KKR’s portfolio has proved more resilient.
KKR’s private equity portfolio appreciated 5.1 percent in the second quarter, while Blackstone’s portfolio lost 4.2 percent of its value and Carlyle’s portfolio depreciated 2 percent.
“Against a challenging economic and capital markets backdrop, we are pleased with our results,” KKR co-founders and co-chief executives, Henry Kravis and George Roberts, said in a statement.
A major driver of KKR’s gains was Walgreen Co.’s investment in pharmacy group Alliance Boots GmbH. The biggest U.S. drug store chain said last month it would pay $6.7 billion for a 45 percent stake in the KKR portfolio company.
Although KKR has yet to book the money to be paid by Walgreens, the deal resulted in a huge mark-up of Alliance Boots in its portfolio, with the company’s value on its balance sheet jumping from $391.7 million as of the end of March to $650.6 million as of the end of June.

Mattress maker Sealy comes out in support of shareholder KKR

NEW YORK, Fri Mar 23, 2012 – Sealy Corp. on Friday defended private equity firm KKR & Co. LP, its largest shareholder, against a hedge fund’s allegations of mismanagement and conflicts of interest that have led to the mattress maker losing 90 percent of its market value.

In a letter to Sealy earlier this month, H Partners Management LLC, which has a 14.5 percent stake in the company, took aim at KKR, not just over its management decisions but also over the conduct of Capstone, KKR’s branded team of consultants.

On Friday, Sealy published a letter sent by Gary Morin, chairman of its nominating and governance committee, to H Partners to address the hedge fund’s demands and rebut its claims.

“We continue to be open to constructive suggestions from shareholders that are in the long-term interest of the company,” Morin wrote.

“However, we do not believe that your combative and public discourse is constructive as we seek the ideal candidate to lead our business and work to improve the company’s performance for the benefit of all our shareholders.”

Sealy, which was started by cotton gin builder Daniel Haynes in the late 19th century, was taken public by KKR two years after its acquisition from another private equity firm, Bain Capital LLC, for $1.5 billion, in 2004.

Since an initial public offering in 2006, Sealy shareholders have collectively seen equity value reduced by $1.3 billion, or about 90 percent.

Capstone has so far been eager to advertise its work on Sealy, featuring words of praise on KKR’s website from Sealy Chief Executive Lawrence J. Rogers, who is set to retire this year once a successor for the troubled company is found.

KKR, Chesapeake to partner in oil and gas investments

OKLAHOMA CITY, Okla. – Tue Mar 6: Private equity group KKR & Co. and Chesapeake Energy Corp. will form a partnership to invest in mineral and royalty interests in oil and gas assets in the United States, which the companies said will be seeded with $250 million.

Under the terms of the agreement, Chesapeake, the second-largest U.S. producer of natural gas, will contribute 10 percent of the initial investment and focus on finding, acquiring and managing royalty interests.

The deal highlights growing private equity interest in the energy sector and comes at a time when decade-low natural gas prices have forced producers to seek partnerships to bolster their depleted cash flows.

Last month, a consortium led by private equity firm Apollo Global Management struck a $7.15 billion deal to acquire El Paso Corp’s oil and gas exploration and production business.

Another private equity major Blackstone Group LP said it would invest $2 billion in Cheniere Energy Partners LP to help build Cheniere’s first export plant in Sabine Pass, Louisiana.

Chesapeake has said it would raise $10 billion to $12 billion from assets sales and joint ventures. The Oklahoma City-based company faces a funding gap in billions for next year and it needs to cobble together a series of deals to raise cash.

KKR said it is making the investment through its affiliates and KKR Financial Holdings LLC.

Google ties up with KKR for California solar projects

MOUNTAIN VIEW, Calif. ― Google Inc. and KKR & C. said they will acquire a portfolio of four solar photovoltaic projects in California from Recurrent Energy, a unit of Japan’s Sharp Corp.

The deal will be financed with a combination of debt and equity from Google and SunTap Energy RE LLC, a new venture formed by KKR on Tuesday to invest in solar projects in the United States.

KKR committed a $95 million line of equity to establish SunTap, a part of which will be drawn for this investment.

The deal marks Google’s first investment in utility-scale U.S. solar projects and brings the technology giant’s total investment in renewable energy to more than $915 million, across the world.

Three of the four projects will be complete early next year and the fourth will come online later in the year, the companies said in a joint statement.

The facilities will provide 88 MW power to Sacramento Municipal Utility District, and are expected to generate about 160,000,000 kWh in their first year of operation — enough to power more than 13,000 average U.S. homes.

Google said in late 2007 it would invest hundreds of millions of dollars in solar, wind and geothermal technologies to help make renewables cost competitive with coal.

KKR-led group has deal to buy Samson for $7.2 billion

NEW YORK ― A consortium led by private equity firm KKR & Co. clinched a deal to buy oil and gas group Samson Investment Co. for $7.2 billion, KKR said on Wednesday.

The deal is the second-largest global private equity transaction of the year, and its structure underscores how more challenging debt markets are leading buyers to find partners to fund larger equity checks.

KKR has a 60 percent participation in the consortium, people familiar with the matter previously told Reuters. The group includes Japanese trading house Itochu Corp. and two other private equity houses.

Samson, founded by the late Charles Schusterman in 1971, offers its new owners rich pickings for their natural resources portfolio. It has interests in more than 10,000 wells, including in oil-abundant areas such as the Bakken and Powder River.

KKR co-founder and chief executive Henry Kravis sealed the deal in his native Tulsa, Okla.

“For Samson, Tulsa is home. It has always been a Tulsa company and it will remain a Tulsa company,” Kravis, who leads KKR together with co-founder George Roberts, said in a statement.

Some areas in which Samson is active are estimated to hold vast quantities of oil and gas locked in shale or other underground formations. These spots are also more expensive to tap than traditional oil and gas fields.

The deal ranks as the second-largest global private equity transaction of the year, behind Blackstone Group’s $9.4 billion agreement to buy nearly 600 shopping malls from Australia’s Centro Properties.The deal excludes Samson’s onshore Gulf Coast and offshore deep-water Gulf of Mexico assets, which will remain with the Schusterman family. Samson Chief Operating Officer David Adams will be promoted to chief executive.

The agreement is subject to regulatory approval and is expected to be completed by year-end, the consortium said in the statement.

Private equity takes two approaches to Yahoo: sources

NEW YORK ― Private equity firms including KKR and TPG Capital are looking to potentially buy minority stakes of up to 20 percent in Yahoo Inc with an eye to eventually taking over the whole company, people with knowledge of the situation said.

These buyout firms have signed confidentiality agreements with Yahoo and could be willing to team up with its co-founders Jerry Yang and David Filo, who together own 9.5 percent of the Internet company, according to the sources.

Acquiring a minority stake could give the buyout firms an advantage in taking full control once the leverage finance market opens up, and also provide them with the potential for representation on Yahoo’s board, the sources said.

Another group of firms, including Blackstone Group, Providence Equity, Bain Capital and Hellman & Friedman have held out against signing nondisclosure agreements that would restrict their ability to form consortiums with strategic partners such as China’s Alibaba Group or Japan’s Softbank Corp, they said.

Carlyle Group has also not signed an NDA, sources told Reuters last week.

Yahoo and the private equity firms declined to comment.

This split in approach comes as bidders jockey for the best position to forge a deal for Yahoo, the Internet pioneer whose growth has stagnated in recent years due to competition from the likes of Google Inc. and Facebook.

Yahoo’s strategic review, announced in September when the board fired CEO Carol Bartz, is complicated by the different agendas of players with a say in the situation, including its Asian partners, the co-founders, the board and shareholders.

That has made for slow going, and the deal process and alliances remain fluid. Silver Lake, for instance, which had been a significant holdout over the restrictive terms of the confidentiality agreement, signed the pact, the AllThingsD blog reported on Wednesday.

Yahoo’s board has come under attack from two major shareholders. Daniel Loeb of activist hedge fund Third Point LLC said last week he was deeply concerned that Yahoo is looking at deals that will allow private equity firms to gain substantial equity positions in the company.

Capital Research and Management, Yahoo’s top shareholder, is “extremely unhappy” with the way the company is handling sale discussions, a source familiar with the institutional investor’s thinking said this week.

Go Daddy in deal to be bought for $2.25 billion by consortium

SCOTTSDALE, Ariz. ― Web hosting company Go Daddy Group Inc announced on Friday it is being bought by a private equity consortium led by KKR and Silver Lake.

The private equity buyers, which also include Technology Crossover ventures, will be purchasing the company for $2.25 billion including debt, a person close to the situation said.

Go Daddy filed to go public in 2006, but withdrew its IPO due to poor market conditions.

Qatalyst Partners served as the exclusive advisor to Go Daddy in connection with the transaction.

Barclays Capital, Deutsche Bank Securities Inc and RBC Capital Markets acted as financial advisors and, along with KKR Capital Markets, they or their affiliates provided financing commitments for the transaction.

KKR & Co. hires Morgan Stanley strategist Henry McVey

NEW YORK ― Morgan Stanley strategist Henry McVey is joining private equity firm KKR & Co. LP as head of global macro and asset allocation, KKR said on Friday.

McVey worked at Morgan Stanley for more than a decade, interrupted by a brief stint as a portfolio manager at Fortress Investment Group LLC. He was head of global macro and asset allocation for Morgan Stanley Investment Management.

McVey, who will be based in New York, will help KKR build out its global macro and tactical asset allocation business, the company said. KKR has assets under management of about $61 billion.

Private equity firms have been expanding beyond their business model and in some cases are becoming large global asset managers with multiple products.

KKR rival Blackstone Group LP hired Wall Street strategist Byron Wien ― also a former Morgan Stanley strategist — in 2009 to provide economic direction and guidance.

Morgan Stanley said McVey would be succeeded by Cyril Moulle-Berteaux, who is returning to the bank to become head of the Global Asset Allocation team.

Moulle-Berteaux worked for Morgan Stanley’s investment management unit from 1995 to 2003 in various roles, including head of the Asset Allocation team, head of Asset Allocation Research and research analyst, it said.