Silver Lake to take Serena private
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by David Carey and Kate Gibson
TheDeal.com
11, Nov 2005
Technology buyout specialist Silver Lake Partners has agreed to acquire Serena Software Inc., a San Mateo, Calif.-based infrastructure software provider, for $24 a share or $1.2 billion, Serena said Friday, Nov. 11.
The deal is the third take-private of a software company announced in a week, and the seventh since the beginning of July.
The offer was just 1.5% over Serena's closing price Thursday of $23.65 but represented a 23% premium to the price one month ago. The shares have climbed recently on takeover rumors and expectations of improved earnings.
Serena shares fell fractionally, to $23.61, Friday afternoon on Nasdaq.
"From a trailing 12-month Ebitda perspective, this was probably one of the most expensive technology buyouts in history," said Serena's CFO, Robert Pender, on the conference call for the deal.
But, according to David Roux, a Silver Lake managing member, Silver Lake is ponying up just 10 to 11 times trailing Ebitda after adjusting for cash on the balance sheet.
Serena CEO Mark Woodward said the company had approached other prospective bidders but that Silver Lake made the best offer.
Serena designs software to prevent disruptions in computer networks and IT systems and keep them running smoothly, particularly during upgrades.
Trailing numbers may not be the best measure, however. Serena said Friday that it expects revenue for the fiscal quarter ended Oct. 31 to rise to between $64 million and $65 million, above its earlier estimate of $60 million to $61 million.
Silver Lake, which has offices in Menlo Park., Calif., and New York, will invest an undisclosed amount of equity for a controlling stake. Merrill Lynch & Co. and Lehman Brothers Inc., which advised Silver Lake, will furnish debt financing for the buyout together with UBS AG.
Serena's founder and chairman, Douglas Troxel, will sell one-third of the 12.5 million shares he owns and roll over his remaining equity.
David Roux, a Silver Lake managing member, wouldn't discuss his firm's blueprint for Serena. Revenue and profit growth have been lackluster much of the past five years, but he said he felt Serena was "operating in a market with the wind at its back."
"[Companies] have begun to understand that their IT systems are not support systems — not a nice-to-have thing. If you're an Amazon.com [Inc.] or an eBay [Inc.] and you're taking an order online and your system is down, you're business is stopped. So making sure they never go down is of paramount importance," he said.
As a result, the corporate world's reliance on dependable IT systems is bound to grow, as is demand for infrastructure software. "We think that's a long-term structural change in the software segment," he said.
In a conference call with analysts Friday, Serena's Woodward said that going private would give Serena's management flexibility "in trying to drive long-term growth prospects without having to be concerned about a one-quarter stumble that could drop the stock price down into the teens."
He indicated that Serena will pursue further acquisitions with Silver Lake's backing after the buyout.
Gary Spivak, a stock analyst at Stanford Group Co. in Boca Raton, Fla., said he expects Serena's stockholders to approve the deal.
"Being a public technology company with modest growth prospects does not get you the valuation you think you deserve," he said. "Serena is a solid, high-profit, cash-generating business that we believe has been undervalued by Wall Street for a long time."
Other recent software take-privates announced this month include Golden Gate Capital's $1 billion bid for Canadian enterprise software maker Geac Computer Corp. and Francisco Partners' $200 million offer for customer management products provider FrontRange Solutions Inc. And, in September, Investcorp SA reached an agreement to buy the publicly traded CCC Information Services Group Inc., which provides software for auto insurance claims, for $663 million. |
