Symantec buys Blue Coat for $4.65bn

Symantec is acquiring threat-blocking service Blue Coat Systems from its private-equity owners Bain Capital for $4.65 billion (€ ), in the struggling antivirus company's largest deal for more than a decade.

Greg Clark, Blue Coat chief executive, will take the top job at Symantec, a position that has been vacant since April. The combined company will be the world's largest enterprise security business by revenues.

Mr Clark promised he would make Symantec “really fit and really competitive”, and said the tie-up would result in $150 million of annual net cost synergies.

“The size and scale of our investment in cyber defence is second to none in the industry,” he said, citing its 3,000 engineers. The combination of Blue Coat’s website scanning and Symantec’s email filtering would give it the “best knowledge” of the new security threats being developed by hackers, Mr Clark added.

Michael Brown, Symantec's previous former chief executive, stepped down in April after just 18 months in the post, amid falling sales.

In January Symantec agreed to cut the price of its Veritas subsidiary by $600 million to $7.4 billion as it sold the data-storage unit to Carlyle. The majority of those proceeds - totalling more than $5 billion – will have been returned to shareholders by the end of the current fiscal year.

Deal

Symantec said it would finance the all-cash Blue Coat deal through its existing balance sheet and $2.8 billion of new debt, with a commitment to pay down the loans within two to three years.

As part of the transaction, Bain will make an investment of $750 million in convertible notes and David Humphrey, a Bain managing director, will join Symantec's board. Silver Lake, an existing Symantec investor, will also invest $500 million in the convertible notes. The investors are hoping to capitalise on the increased complexity of internet security created by cloud computing, mobile devices and the internet of things, as hacking breaches continue to make regular headlines.

"The co-investment of two savvy financial sponsors are just proof of that industrial logic that is behind the combination," said Thomas Seifert, Symantec's chief financial officer. "Blue Coat has done a tremendous job repositioning the company over the last year."

Bain’s Mr Humphrey said Mr Clark had done an “extraordinary job of building Blue Coat into a fast-growing, market-leading business”.

“We enjoyed a productive partnership, and are excited to be a significant investor in the future of Symantec as the leading cyber security company in the world,” he said.

Symantec is paying almost double the price that Blue Coat fetched a little over a year ago. Bain's March 2015 purchase from fellow private equity group Thomas Bravo valued Blue Coat at $2.4 billion, about 12 times its $196.6 million adjusted earnings before interest, tax, depreciation and amortisation for the year ending in April last year. Now, after Blue Coat's growth accelerated under Bain's ownership, in part thanks to acquisitions of smaller security companies, Symantec is paying almost 21 times its $222.8 million adjusted ebitda for the year to April 2016.

Symantec is paying for growth: Blue Coat’s adjusted net revenues grew 17 per cent year-on-year to $755.4 million last year, while Symantec’s sales fell 9 per cent in the 2016 fiscal year to $3.6 billion.

Less than a fortnight ago, Blue Coat said it had filed to raise $100 million in an initial public offering, which would have made it one of the few technology companies to list in 2016 to date. April saw the stock market debut of SecureWorks, Dell’s cyber security unit, but investor reaction has been muted, with the shares trading slightly below its opening price of $13.89.

IPO

According to its IPO filing, Blue Coat is the top company by market share in the web security market, which it said could be worth more than $11 billion by 2019. Blue Coat’s cloud-based technology helps companies to manage the security of employees’ mobile devices and online applications, while Symantec’s has traditionally been focused on PCs inside the traditional corporate network.

Venture capital funds have poured into cyber security start-ups in recent years as the hacking threat has grown in prominence. However, in recent months that funding has started to dry up, leaving some start-ups struggling.

Mr Clark ruled out any further deals in the near future, saying Symantec already had the “most complete product set in the industry . . . We think the future is definitely spoken for with everything we have.” However, he added that on a “longer-term horizon”, the potential for falling start-up valuations could be “something that plays into our favour a number of years out”.

– Copyright The Financial Times Limited 2016