Last updated: May 6, 2013 10:40 pm

Business software group BMC to be taken private for $6.9bn

BMC, a US business software company, has capitulated to activist investors and agreed to sell itself to a private equity consortium for $6.9bn, marking one of the biggest buyouts of the year.

The deal signals growing interest in mature tech companies as targets for buyouts, thanks to their steady cash flow and the rock-bottom interest rates that have made financing easier. It comes as the controversial proposed buyout of Dell nears its climax, with some influential investors holding out for a higher price than the $24.4bn on offer.

Bain Capital and Golden Gate Capital, along with GIC Special Investments and Insight Venture Partners, will pay $46.25 per share for BMC. Based on the company’s cash flow, the price values it at a premium of around 15 per cent to arch-rival CA Technologies and should draw attention to the relatively low valuations of some other software companies, according to analysts at Evercore.

The deal marks a success for Elliott Management, the activist investor that accumulated 9.6 per cent of BMC shares and won two seats on the company’s board. It had agitated for a deal for much of the last year, but was initially rebuffed. In recent months, however, talks picked up as the investor consortium came together and BMC’s management bowed to pressure to consider a sale.

The company’s business was founded on making management software for mainframe computers, a profitable but low-growth niche in which it competes with rivals such as CA. Elliott has pressed it to expand into newer markets such as software as a service business, which involves delivering its technology as a subscription service over the internet.

BMC blamed the uncertainty caused by Elliott’s intervention for a downturn in its business last year. The strong rhetoric employed by the activist investment group alarmed some customers at the time, Bob Beauchamp, chief executive, said on Monday. However, he added that the company’s latest quarterly results, due to be published on Tuesday, would show that stability had returned to the business after Elliott dropped its vocal opposition to management.

The deal comes with a 30-day “go-shop” period during which BMC can solicit bids from other buyers. Dell, the world’s third-largest PC maker, saw two rival proposals put forward during its own 45-day go-shop earlier this year. However one of those offers, from Blackstone, has since been withdrawn, leaving only a deal from Carl Icahn on the table.

Insight Venture Partners, part of the investor group taking Dell private, had teamed up with Blackstone in its bid for Dell. Golden Gate has experience in software investing, previously buying companies such as Infor, Lawson and Novell.

Elliott is also agitating for a sale of Compuware, a smaller competitor to BMC. Should that deal get done, Compuware and BMC could make sense put together.

BMC was advised by Morgan Stanley and Bank of America and received legal counsel from Wachtel Lipton Rosen & Katz. The investor group was advised by Qatalyst Partners, Credit Suisse, RBC and Barclays, and received legal advice from Kirkland & Ellis.

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