Tech Mega-Buyouts Edge Toward Comeback as BMC, CA Plot Deal

Four years after Blackstone Group LP and Silver Lake Management struggled to take Dell Inc. in private, buying firms are back in the market for great leveraged technology offerings.

BMC Software Inc., owned by Bain Capital and Golden Gate Capital, and CA Inc. are considering a potential deal that would see software companies combined as part of a transaction to take private CA, according to people familiar with the process. Shares of CA rose to 16 percent on Tuesday, valuing the New York-based company at more than $ 15 billion.

If an agreement goes ahead, and if structured as an acquisition leveraged by private equity firms followed by a combination with BMC, it would be the largest LBO of a technology company since Silver Lake and Michael Dell won the fight to buy Dell in 2013 In a transaction valued at almost $ 25 billion. Two years later, Dell announced its own mega-deal: the $ 67 billion acquisition of EMC Corp.

Another major technology deal is also underway as a group led by Boston-based Bain and Japanese investors is the leading supplier of Toshiba's memory chip business. Buyers have indicated they are willing to pay 2.1 trillion yen ($ 19 billion) for the semiconductor unit, said people with knowledge of the matter. The parties intend to reach a final agreement by June 28 and close in March, Toshiba said Wednesday.

The appetite of private equity companies for large bids has moderated in recent years, with the specter of the leveraged acquisition boom from 2005 to 2007 still pending in the industry. During that period, procurement firms spent huge sums of money on about 20 outperformed operations - each valued at more than $ 10 billion - many of which failed to deliver returns in line with expectations.

Since the beginning of 2008, only one of these deals, apart from Dell, has been led by a private equity firm: the acquisition of ADT Corp. last year by Apollo Global Management LLC for $ 12.3 billion.
More cautious

Now, the procurement companies are testing the waters again. Cloud services company Citrix Systems Inc. has been working with advisors to look for potential suitors, drawing interest from private equity investors including Bain, Carlyle Group LP and Thoma Bravo, Bloomberg reported in May.

There are indications, however, that companies are being more cautious this time: Discussions between Citrix and potential financial bidders have stalled because the company's price was too high and the business too large, people familiar with the process told Beginning of this month.

That is a change from the boom years, when the private equity investment fund debt saw it succeed in several deals valued at more than $ 30 billion. These included a record $ 48 billion TXU purchase, now called Energy Future Holdings Corp., which was the only total capital reduction of the 19 mega-deals. The company's 2014 bankruptcy evaporated a $ 8.3 billion stake led by KKR & Co., TPG and Goldman Sachs Group Inc.
Large checks

Leveraged acquisitions, in which financial sponsors collect a large amount of debt to finance an acquisition, depend on the willingness of banks to make large checks. BMC and CA have already approached the banks to develop a debt package to finance the potential purchase of CA, said the people, who asked not to be identified because the information is not public. The talks are at an early stage and there is no guarantee that an agreement will be reached, the people said.

BMC has been owned by Golden Gate, based in Bain and San Francisco, since 2013, when they took the private company in a deal valued at about $ 6.9 billion, according to data compiled by Bloomberg. The companies, which got a $ 750 million dividend from the company in 2014, could contribute a new equity to help finance the CA deal, the people said.

BMC, Bain and Golden Gate declined to comment. Representatives of the New York City CA did not respond to requests for comments.
Dry powder

As private equity firms face record amounts of dry powder for acquisitions, they are looking for more creative ways to deploy it, according to Stephanie Cohen, director of M & A financial sponsors at Goldman Sachs.

Cohen said Tuesday in a Bloomberg Television interview at the Goldman Sachs Leveraged Finance Conference in California, where buying firms are located at about $ 600 billion of capital, which is more than during the boom of the LBO that preceded To the financial crisis.

"They're taking their portfolio companies and turning them into strategic acquirers," Cohen said.

The structuring allows private equity firms to compete more equitably with corporate acquirers, who tend to bid higher than financial buyers in the auction process. It also gives a purchasing company the opportunity to benefit from the synergies between the company already owned and the new asset as well as creating a potentially greater paycheck once the largest combined business is taken public or sold .