Is Symantec Trying To Raise $2.8B For The Blue Coat Buyout?

Citing certain sources, yesterday Reuters reported that Symantec Corporation (NASDAQ:SYMC) is looking to raise $2.8 billion in term loans to complete its pending acquisition of Blue Coat Inc.

The multinational mass media and information firm believes that the loans will comprise of a $1 billion three-year Term Loan A and $1.8 billion five-year Term Loan A. As per Reuters, “Pricing opens at 150bp over Libor for the three-year and 175bp over Libor for the five-year.”

Symantec and Blue Coat had entered into a definitive agreement last month, under which Symantec would pay a total cash consideration of $4.65 billion for the acquisition. The Norton antivirus maker expects to complete the acquisition in the third quarter of this year.

Blue Coat is a privately owned company, which was founded in 1996 as CacheFlow. The company’s security solutions allow organizations to protect their web gateways from cyberattacks. In Dec 2011, the company was acquired by private equity investment firm, Thoma Bravo, for $1.3 billion followed by the Mar 2015 takeover by Bain Capital for $2.4 billion.

At present, Blue Coat’s Cloud Generation Security solutions are used by a worldwide customer base of over 15,000.

The addition of Blue Coat is expected to enhance Symantec’s capabilities significantly. As per Symantec, the acquisition will not only provide economies of scale and bolster its existing portfolio, but will also provide necessary resources to develop solutions to “protect large customers and individual consumers against insider threats and sophisticated cybercriminals”.

Apart from this, the deal will also provide direct access to Blue Coat’s huge customer base, which will drive the combined company’s revenues. In fact, Symantec estimated that the combined entity’s revenues would have been $4.4 billion in fiscal 2016 as against $3.6 billion it reported as a standalone entity.

Moreover, the transaction is anticipated to help Symantec realize cost synergies of approximately $150 million by the end of fiscal 2018. This will be in addition to cost savings of $400 million under its previously announced cost-efficiency program.

The Blue Coat acquisition will also end Symantec’s search for a new Chief Executive Officer (CEO). The company has been looking for the new CEO ever since Mike Brown announced his intension of stepping down from his post following dismal fourth-quarter fiscal 2016 results. On Jul 11, Symantec's management announced that the current CEO of Blue Boat, Greg Clark, will assume the role of the CEO of the combined company, once the deal is successfully completed.

Conclusion

Of late, Symantec’s top and bottom lines have been under pressure due to persistent weakness in PC sales, which particularly hurt its core Norton Anti-virus software business. Apart from this, intensifying competition from Palo-Alto Networks (NYSE:PANW) , FireEye Inc. (NASDAQ:FEYE) and Check Point Software (NASDAQ:CHKP) has been eroding its market share in the enterprise segment.

As a result, the company has been aggressively restructuring its business. In doing so, on Jan 29, the company closed the sale of its Veritas business for $7.4 billion to Carlyle Group (NASDAQ:CG). We believe that the deal provided Symantec with much needed funds to continue expanding its product portfolio as well as its presence in fast growing markets.

With the acquisition of Blue Coat, the company will be able to reduce its dependence on the PC market and strengthen its position in the enterprise security space. Revenues from the enterprise security segment will now contribute 62% to the company’s top line.

We expect the latest acquisition to contribute considerably to the company’s overall growth.

Currently, Symantec carries a Zacks Rank #3 (Hold).