17 June 2016

Symantec to acquire web security provider Blue Coat Systems

This week, Nasdaq-listed Symantec agreed to acquire cybersecurity firm Blue Coat Systems (including debt and cash balances) for around USD 4,650 million in cash. To fund part of the consideration, the acquiror has obtained financing from debt providers, including JP Morgan, Barclays, Bank of America and Citigroup. Bain Capital, the owner of Blue Coat, plans to reinvest USD 750 million from the sales proceeds in Symantec’s convertible notes following the deal.  The acquisition, which is expected to close before October this year, is Symantec’s largest since 2005, according to Zephyr, the M&A database published by Bureau van Dijk.

The transaction came almost two months after Symantec chief executive Michael Brown was asked to step down due to lacklustre financial results. Early this year, he spearheaded the sale of Veritas Technologies, Symantec’s then data storage subsidiary. With a selling price of USD 7,400 million (down from the USD 8,000 million agreed last August), Symantec incurred a significant a loss from the USD 13,500 million it paid in 2005. Following the Blue Coat deal, Brown, who has held the position for less than two years, will be replaced by Blue Coat chief executive Greg Clark.

Large corporations have recently been plagued by worries over potential cybersecurity breaches. Last year, hackers hacked into the servers of Ashley Madison, an online dating website which specifically targets those who wish to engage in extramarital affairs, and subsequently published the identities of its 37 million users. Similarly in 2014, confidential data of Sony Picture Entertainment’s employees was accessed and leaked by a hacker group known as Guardians of Peace. These headline-grabbing data breaches could have prompted companies to view cyber threats more seriously, fuelling growth in the internet security market.

Commenting on the deal, Symantec chairman Dan Schulman stated: "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 mainly provides traditional antivirus software, which may soon become obsolete with the emergence of more sophisticated threats. Leo Sun of the Motley Fool reckons with the rise of mobile and connected gadgets, cybercriminals these days can target anything that uses the internet. By owning Blue Coat, which specialises in web security, the buyer is able to improve its product offerings to revive its business.

Blue Coat currently has over 15,000 corporate clients worldwide that use its technology to block dangerous websites. According to the Financial Times, the combined entity, which will have more than 3,000 engineers following the merger, is poised to become the world’s largest enterprise security company by revenue.

In January this year, Blue Coat had intended to raise around USD 500 million in an initial public offering (IPO), according to Bloomberg. The plan was later halted when Symantec approached Bain Capital with an offer a few months ago, as reported by Fortune. In an interview with the Wall Street Journal, Symantec chief financial officer Thomas Seifert said:  “If you look at what we’ve paid, it’s well within the range of what an IPO valuation would have been.

© Zephyr