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Why Did Blue Coat Shelve Its IPO Plan and Sell to Symantec?

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Blue Coat’s IPO plans

Symantec’s (SYMC) acquisition of Blue Coat Systems is the company’s largest acquisition in more than a decade. It follows the acquisition of Veritas in 2005. Symantec’s acquisition shows that it’s following the trend of its peers in the technology space, namely IBM (IBM), Oracle(ORCL), and Salesforce.com (CRM). They all bought cloud computing startups in 2016 to give themselves a boost in the cloud space.

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In early June 2016, Blue Coat filed Form S1, which explains its IPO (initial public offering) of securities. Blue Coat posted a loss of $289 million on revenue of $598 million in its fiscal year that ended April 30, 2016. In the previous year, Blue Coat posted revenue and losses of $569 million and $271 million, respectively.

Blue Coat was a publicly traded company until 2012 when it was acquired by Thoma Bravo, a private equity firm, which later sold it to Bain Capital. Early in June 2016, Blue Coat filed for an IPO and considered going public. However, after Symantec became interested in Blue Coat and after weighing all its opportunities, Blue Coat opted to sell to Symantec.

Bain Capital records more than 90% return with Blue Coat sale

In 2015, Bain Capital, a private equity firm that holds about a 75.6% stake in Blue Coat, acquired Blue Coat from Thoma Bravo for $2.4 billion. Bain Capital’s ownership can be seen in Blue Coat’s Form S-1. With Blue Coat’s sale to Symantec, Bain appears to have a return of more than 90%.

Commenting on Blue Coat’s sale to Symantec, David Humphrey, managing director at Bain Capital, said, “This represented a compelling opportunity for us because we could realize some gains for our investors but also reinvest into the combined company. We believe very much in the industrial logic and strategic rationale of this transaction.”

For diversified exposure to companies in the US software space, you can consider investing in the Technology Select Sector SPDR ETF (XLK). XLK has ~38% exposure to application software.

Next, let’s see why Symantec’s buyout was expected after its Silver Lake investment.

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