The world’s biggest maker of cyber security software should be good at spotting lurking dangers. Yet Symantec’s own accounting scandal appeared to blindside executives earlier this year. The bungled explanation of what happened plus lousy forecasts sliced a third off the company’s market value. A potential buyout from tech-centric private equity firm Thoma Bravo suggests problems have eased.
This should be a terrific time for providers of security software. Fears of cyberwarfare and data breaches means spending by global companies is expected to rise by a fifth next year, slightly more than the year-on-year increase in 2018, according to Wedbush.
Yet Symantec has struggled to shake off its homegrown issues. In spite of closing its internal investigation and publishing a good set of quarterly earnings last week that showed consumer security revenues were up more than 8 per cent, the stock has barely moved. At 14 times expected earnings, Symantec shares trade at one of the lowest multiples in the cyber security sector.
Given Symantec’s $5bn of debt, Thoma Bravo’s offer would mark the high point for leveraged buyouts this year. The funding required to complete the deal could put a ceiling on the premium paid. If the buyout comes with the sort of premium to Symantec’s undisturbed share price that Thoma Bravo’s smaller acquisition of Barracuda did, it would translate to a deal worth $23 per share. But Symantec’s brands, including Norton, are more impressive than Barracuda’s. If priced at a similar 29 per cent premium as the recent Imperva purchase, Symantec’s share price would return to pre-scandal levels giving the company an enterprise value of about $19bn.
It is hard to see how else Symantec can power its share price back to the highs seen this year. Activist investor Starboard Value wants to see an improvement in margins and Symantec is cutting 8 per cent of its global workforce but problems go back to the split with data storage division Veritas in 2014. Note that the revolving door for executives and frequent acquisitions designed to improve the enterprise business, including a $4.6bn purchase of Blue Coat still being integrated. Symantec’s execution has never matched its promise. An acquisition at a 30 per cent premium is a dream scenario.
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