Symantec has unveiled plans to acquire Blue Coat Systems for $US4.651 billion, in a move designed to bolster the tech giant’s cyber security portfolio, and fill its vacant CEO slot.
Following board of director approval, the deal is expected to close in the third calendar quarter of 2016, with Australian-born Greg Clark, CEO of Blue Coat, set to be appointed CEO of Symantec and join the new-look board upon closing of the transaction.
Clark was previously president and CEO of Mincom, a global software and services provider to asset-intensive industries, before taking the reins at Blue Coat in August 2011.
Terms of the acquisition will see Clark fill the role vacated by former CEO Michael Brown, who stepped down from the security vendor following a string of disappointing financial results in April.
“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,” Symantec chairman, Dan Schulman, said.
“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.
“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.”
Schulman said the new-look vendor will combine Symantec’s threat telemetry with Blue Coat’s networks and Cloud security offerings to provide security solutions across hundreds of millions of endpoints and servers, and billions of email and web transactions.
As a result, Symantec will also be able to deliver security for the Cloud generation of users, data and apps, for the Cloud, from the Cloud and to the Cloud.
In addition, the combined company aims to bring together its investment in cyber R&D and threat research, spanning over 3,000 engineers and researchers, as well as nine Threat Response Centres.
“Today, Symantec keeps global enterprises, governments and individual consumers protected with solutions across threat protection, information protection and managed services,” Blue Coat CEO, Greg Clark, added.
“Likewise, Blue Coat is the trusted source for protecting billions of web transactions daily and is the clear leader in the growing cloud security market.
“Once combined, we will offer customers around the world - from large enterprises and governments to individual consumers - unrivalled threat protection and unmatched cloud security.
“With employees of Blue Coat and Symantec coming together, we will be well positioned to drive meaningful growth and push the boundaries of innovation.”
Clark said the combined company would have had $US4.4 billion in revenues in fiscal year 2016, of which 62 percent would come from enterprise security.
By the end of fiscal 2018, Symantec expects to realise $US550 million in run-rate cost savings, of which $US400 million will come from Symantec’s previously announced cost efficiency program.
Building not selling?
The upcoming acquisition comes at a time when many industry analysts predicted further consolidation for the security vendor, following its recent split from information management firm Veritas.
As reported by ARN in May, Symantec was heavily rumoured to be considering a second split of the company in 2017, as innovation delays and executive departures continued to stifle the vendor’s quest to reinvigorate its security market leadership.
“Although Symantec has one of the largest security customer bases in the world, the relatively slow pace of security innovation and continued organisational disruption at Symantec are draining customer confidence in the vendor and will lead to more declines for at least the next two quarters,” Technology Business Research Principal Analyst, Jane Wright, told ARN.
Consequently, Wright claimed that Symantec’s board of directors would consider splitting the company into two entities, positioning one for acquisition in 2017.
Yet with Blue Coat soon to be onboard, and with a deepened security portfolio at hand, whether this strategy plays out now remains to be seen.
Meanwhile, Blue Coat also seemed set for a different path, having explored life as a public company as recently as last week, after filing a registration statement with the U.S. Securities and Exchange Commission relating to a proposed initial public offering of its common stock.
Specific to the Australian channel, Intalock CEO Julian Haber told ARN that the move represents a “very positive step” for both organisations.
Speaking as a key Symantec partner, Haber said Blue Coat’s web security technologies are “highly complementary” to Symantec’s current portfolio.
“Plus the added benefit of gaining a CEO such as Greg Clark is ultimately the icing on the cake,” he said.
“The real challenge here will be ensuring a smooth integration of the two organisations. Symantec personnel and customers have been through a lot over the last couple of years and they really need some stability and a period of calm.”
Combining cyber security practices
The integration of the two companies will be led by executives from both Symantec and Blue Coat, with integration planning to begin immediately.
“With the $US150 million in expected annual net cost synergies, in addition to our previously announced $US400 million in planned net cost savings, this transaction will allow Symantec to improve our profitability while continuing to invest in innovation and drive growth,” Symantec CFO, Thomas Seifert, added.
“The acquisition is expected to be significantly accretive to our non-GAAP earnings creating meaningful value for our shareholders.
“We are reiterating our first quarter guidance and maintaining our commitment to our previously announced $5.5 billion capital return program, of which the remaining $1.3 billion will be returned by the end of the current fiscal year. We will also continue our practice of paying a quarterly dividend to our shareholders.”
In connection with the transaction, Seifert said investment firm Silver Lake has agreed to make an additional investment of $US500 million in 2.0 per cent convertible notes due 2021 of Symantec, doubling its investment in Symantec to $US1 billion.
Furthermore, Bain Capital has agreed to make an investment of $US750 million in the convertible notes, which are noncallable and unsecured, and have an initial conversion price of approximately $US20.41 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.
Going forward, Seifert said Symantec intends to finance the transaction with cash on the balance sheet and $US2.8 billion of new debt, with the company 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.
