Symantec will acquire Blue Coat for $4.65 billion

Symantec will acquire Blue Coat for approximately $4.65 billion in cash. The transaction has been approved by the Boards of Directors of both companies and is expected to close in the third calendar quarter of 2016. Greg Clark, CEO of Blue Coat, will be appointed CEO of Symantec and join the Symantec Board upon closing of the transaction.

For Blue Coat’s fiscal year ending April 30, 2016, GAAP revenue was $598 million and non-GAAP revenue was $755 million, with 17% year-over-year growth, supported by new products and new customers. For the same time period, the company had non-GAAP operating margins of 22% and cash flow from operations of $135 million. Also for this time period, GAAP operating margins were -42%.

With the acquisition of Blue Coat, Symantec will enhance its leadership position to define the future of cybersecurity and set the pace for innovation industrywide. The combined company will:

• Protect customers against more cyber threats, with best-in-breed protection, detection and remediation across endpoint, email, web, network and servers. This transaction will combine Symantec’s leading threat telemetry with Blue Coat’s networks and cloud security offerings to provide differentiated security solutions across hundreds of millions of endpoints and servers, and billions of email and web transactions.
• Help enterprises securely embrace the cloud. Symantec will be able to deliver security for the cloud generation of users, data and apps, for the cloud, from the cloud and to the cloud. The company’s leading data loss prevention capabilities will be applied at the web proxy and to over 12,000 cloud applications.
• Bring together a formidable scale of investment in cyber R&D and threat research. These investments span over 3,000 engineers and researchers, as well as nine Threat Response Centers.

“With this transaction, we will have the scale, portfolio and resources necessary to usher in a new era of innovation designed to help protect large customers and individual consumers against insider threats and sophisticated cybercriminals. Together, we will be best positioned to address the ever-evolving threat landscape, the massive changes introduced by the shift to mobile and cloud, and the challenges created by regulatory and privacy concerns,” said Dan Schulman, Chairman of Symantec. “Greg and the entire Blue Coat leadership team have done an exceptional job of strengthening, growing and scaling their business. In addition to a proven track record of delivering scale and profitable growth, Greg brings significant leadership experience, deep security expertise and a history of successfully integrating companies into a single portfolio; he is the right person to lead Symantec as we advance our position as the leader in cybersecurity.

Financial benefits to Symantec shareholders

On a pro-forma, non-GAAP basis, the combined company would have had $4.4 billion in revenues in fiscal year 2016, of which 62% would come from enterprise security. By the end of fiscal 2018, Symantec expects to realize $550 million in run-rate cost savings, of which $400 million will come from Symantec’s previously announced cost efficiency program.

Investing in the future of Symantec

In connection with the transaction, Silver Lake has agreed to make an additional investment of $500 million in 2.0% convertible notes due 2021 of Symantec, doubling its investment in Symantec to $1 billion. In addition, Bain Capital has agreed to make an investment of $750 million in the convertible notes. The convertible notes are noncallable and unsecured, and have an initial conversion price of approximately $20.41 per share.

In connection with this investment, David Humphrey, a Managing Director of Bain Capital Private Equity, will be appointed to Symantec’s Board of Directors, effective at the close of the transaction.

Financing and path to completion

Symantec intends to finance the transaction with cash on the balance sheet and $2.8 billion of new debt. The company is focused on paying down a significant portion of this debt within the next several years with cash on the balance sheet and through cash generation.

The transaction, which is expected to be completed in the third calendar quarter of 2016, is subject to the satisfaction of customary closing conditions, including applicable regulatory approvals.