Apax eyes Polycom as shares surge

Apax Partners has been in talks with Polycom, the largest maker of video conferencing equipment, about a deal to take the company private, which could value the group at more than $3bn.

The London-based private equity group has been negotiating with California-based Polycom since November and had been working towards making a formal offer, pitched at around $37 a share, before the end of this month.

However, people close to the situation warned that a deal could now prove unfeasible, given the surge in Polycom’s shares since talks began. The price would represent more than a 22 per cent premium to where Polycom shares are currently trading.

Polycom shares on Tuesday rose 1 per cent to $30.31, in afternoon trading in New York. Since the beginning of November, Polycom shares have risen more than 40 per cent, which prompted further negotiation earlier this year between the two sides.

Apax’s interest in Polycom, which remains the only sizeable independent provider of video conferencing equipment after Cisco’s $3.4bn acquisition of rival Tandberg, could prompt a rival move. Cisco is awaiting regulatory approval to close its deal for Norway’s Tandberg, the second largest maker of video conferencing equipment, announced last October.

Companies such as Cisco and Hewlett Packard, as well as Avaya, which is owned by private equity groups Silver Lake and TPG, compete in various segments of the market, catering to companies seeking to reduce travel costs by using video technology to hold meetings.

Polycom and Tandberg, the second largest maker of video conferencing equipment, are responsible for about 70 per cent of the equipment sold globally, with other participants, such as Hewlett Packard, focused on the higher quality end of the market.

At $37 a share, a deal would value Polycom at about 15.7 times the company’s forecast earnings before interest, tax, depreciation and amortisation, only slightly above where recent deals, such as Cisco’s acquisition of Tandberg, have been struck. Polycom has no debt.

The company had about $331m of cash and highly liquid, short-term investments on its books at the end of 2009, according to Bloomberg.

In the fourth quarter, Polycom generated a record $68m of operating cash flow, its 48th consecutive quarter of positive operating cash flow, making it an attractive target for a private equity buyer.

Since Cisco announced its deal to buy Tandberg, Polycom has responded by signing a number of strategic alliances with competitors, including a resale agreement with Siemens Enterprise Communications announced in January.

Polycom had sales of $967m last year, down about 9.5 per cent from 2008, with net income of $102m. In the fourth quarter, 70 per cent of its net revenues came from its video solutions business, with the remainder made in voice communications.

Polycom declined to comment. Apax Partners also declined to comment.

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