Private equity group KKR has agreed to buy US enterprise software company BMC from a consortium of rivals including Bain Capital and Golden Gate Capital for $8.3bn, according to two people with knowldge of the deal.
Bain and Golden Gate bought BMC, a software provider that helps companies run their IT operations, for just under $7bn in 2013.
Insight Venture Partners, hedge fund Elliott Management and GIC, the Singaporean sovereign wealth fund, also participated in the 2013 deal. Such “club” deals have fallen out of fashion since the financial crisis, as firms increasingly prize their independence.
“In an ever-changing IT environment that is only becoming more complex, companies that help simplify and manage this essential infrastructure for their enterprise customers play an increasingly important role,” KKR said in a statement.
KKR, Bain and Golden Gate declined to comment on the size of the transaction.
BMC earns about half of its operating profits and free cash flow from its mainframe business, according to Moody’s. Analysts with the New York-based credit rating agency warned late last year that the mainframe business had “limited growth prospects”.
The company has shifted its research and development budget towards faster growing parts of its business. It has launched new products to help businesses manage cloud computing expenses as well as migrate technology to the cloud. Both Moody’s and S&P Global have assigned the company junk ratings and raised red flags over the high debt levels it sustained from its 2013 leveraged buyout.
“We have concerns that areas of BMC’s product portfolio beyond IT service management may be vulnerable to disruption from new competitors, and note that BMC’s significant debt burden has constrained its ability to use acquisitions to bolster its technology portfolio compared to peers,” James Thomas, analyst with S&P, said earlier this year.
The software group’s outstanding bonds which mature in 2021 climbed following news of the sale. The $1.8bn note rose to 102.4 cents on the dollar on Tuesday, according to bond trading platform MarketAxess.
The deal comes as private equity firms seek to put large amounts of raised funds to work. Groups attracted as much as $484bn from investors last year, according to data provider Preqin.
Private equity groups have also turned to secondary buyouts, where they purchase a business from a rival, as competition with corporate buyers has heated up. So far this year, private equity firms have announced buyouts of portfolio companies owned by competitors worth more than $36bn, according to Dealogic. That is down 16 per cent from a year ago, but still among the five fastest starts to a year.
KKR said its takeover of BMC was expected to close in the third quarter of 2018, subject to regulatory approvals. Financing for the transaction has also been agreed.
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