Private equity firms are grabbing the biggest players and taking them private
The leveraged buyout of Dell that resulted in its merger with EMC and the computer giant going private was the first of what appears to be many similar moves. Private equity firms are looking to gobble up some of the enterprise giants and in the process, take them private.
BMC Software, which develops IT services software and data center automation software, among many other products, is looking to merge with CA, formerly Computer Associates. BMC is owned by Bain Capital and Golden Gate Capital, so any deal to acquire CA would take the company off the public market.
CA has a market valuation of $15 billion, so this would be the biggest deal since Silver Lake won the fight to buy Dell and take the firm private in 2013. That deal was valued at $25 billion.
Bain has eyes elsewhere. It is part of a group of investors looking to buy Toshiba’s memory chip business. Toshiba is in dire financial straits due to its Westinghouse division losing billions and is divesting the memory business to balance its books.
Bain and its Japanese partners have offered $19 billion for the Toshiba unit, but Western Digital, which has a partnership with Toshiba, is suing to block the deal because it wants the Toshiba memory unit. The battle for the moment is whether Western Digital, a California company, has any standing to block the transactions of a Japanese company.
And Bain still isn’t done. It’s among the suitors, along with Carlyle Group LP and Thoma Bravo, looking to buy out cloud services company Citrix Systems. However, that buyout stalled because Citrix wanted too much money, causing Bain to balk.
What’s driving this buying trend?
So why the interest? Most likely they are seeing the benefits of going private that Dell has enjoyed. Michael Dell has repeatedly said that going private was a great thing for the firm without having to meet “the quarterly demands of Wall Street.”
The unfortunate face is these companies that are going private through leveraged buyouts (LBOs)—CA, BMC, Dell and Citrix—are out of favor among Wall Street types. They are mature companies with little growth story. Wall Street is obsessed with growth. That’s all it cares about. There is no better way to kill your stock than to say the next quarter isn’t looking good.
So, a company like CA, which has been public since 1981, struggles to tell a growth story. It has made numerous strategic acquisitions to help modify and change its product line. It still relies on mainframe software sales but has grown its enterprise business considerably. And it’s a real pain to do it when you have to do a dance for nosy Wall Street analysts every 90 days. That’s another thing Michael Dell talked about in going private. He could plan and execute on long-term strategy without the what-have-you-done-for-me-this-quarter nonsense.
(I think he hated the public company ritual even more than Steve Jobs.)
Taking a firm private allows the company to refocus and retrench for new markets without the public scrutiny. It seems to be doing wonders for Dell, which is fiercely competitive these days. If old maids like BMC, CA and Citrix can get a similar revitalization and adapt to the new, modern cloud-oriented world we live in, then all the better for their customers.
