Private Equity Behemoths To Buy SolarWinds for $4.5B, Sending Stock Skyrocketing

Silver Lake and Thoma Bravo plan to purchase IT infrastructure management vendor SolarWinds for $4.5 billion, upping the investment around cloud, hybrid and MSP environments.

The Austin, Texas-based vendor, which owns Ottawa, Ontario-based remote monitoring and management company N-able, said going private will provide the company with more operating flexibility and make it easier to execute its long-term strategy.

"This transaction recognizes the strength of our unique business model," Kevin Thompson, president and CEO of SolarWinds, said in a statement. "We remain committed to our customers and to delivering world-class products to help IT professionals manage all things IT in today's increasingly performance-driven IT infrastructures."

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Wall Street responded very favorably to the news, sending SolarWinds' stock soaring 16.4 percent Thursday to $58.45 per share. The deal was announced before the market opened.

The deal, which is subject to stockholder and regulatory approvals, is expected to close in the first quarter of 2016. SolarWinds has to pay Silver Lake and Thoma Bravo $159 million if their stockholders do not approve the deal, according to a U.S. Securities and Exchange Commission filing; likewise, Silver Lake and Thoma Bravo must pay SolarWinds $317.9 million if they terminate the deal.

Silver Lake and Thoma Bravo have offered to pay $60.10 in cash for each of the 74.88 million outstanding shares of SolarWinds stock, a 43.5 percent premium over SolarWinds' closing price of $41.88 on Oct. 8.

SolarWinds on Oct. 9 revealed it was reviewing a possible sale after an unsolicited expression of interest, which caused the company's stock to jump 13.4 percent. Since then, SolarWinds' board of directors approved the sale, according to the company.

Seth Boro, a managing partner at Chicago-based Thoma Bravo, said the private equity powerhouse wants to build upon SolarWinds' existing market leadership in network performance monitoring as well as accelerate growth in cloud, hybrid and managed services.

Similarly, Ken Hao and Mike Bingle, managing partners at Menlo Park, Calif.-based Silver Lake, said they've been impressed with the strong track record of growth at SolarWinds.

"SolarWinds is an exceptional franchise, empowering IT professionals to solve a broad range of challenges every day," Hao and Bingle said in a statement. "We see significant potential to extend and grow the SolarWinds franchise as a private company."

SolarWinds, Silver Lake and Thoma Bravo all declined to comment for this story.

Silver Lake and Thoma Bravo have been two of the biggest and most active private equity players focused on IT.

Silver Lake has more than $26 billion in combined assets under management, highlighted by a $1.4 billion investment in Dell's $25 billion buyout in late 2013. Today, Silver Lake owns about 25 percent of Dell, as well as a portion of the Alibaba Group, Avaya, Go Daddy and SunGard.

Thoma Bravo, meanwhile, has more than $8.5 billion of equity commitments, highlighted by its joint, $3.6 billion purchase of Riverbed Technologies in December. The firm also took Compuware private in September 2014, and last month sold its majority stake in Sirius Computer Solutions, No. 28 on the 2015 CRN Solution Provider 500.

SolarWinds has struggled in recent months, with second-quarter earnings coming in lower than expected because of challenges in the licensing business. The vendor was founded in 1999 and went public in 2009, providing IT infrastructure management software to small businesses, educational institutions and governments.

N-able came under SolarWinds' purview in May 2013 when the company purchased the RMM company to better service MSPs who support SMB clients. N-able, for its part, has also been active in the acquisition market, revealing the purchase of IT service management platform firm Capzure technology in August and remote control access provider BeAnywhere this month.

Going private should enable N-able to be more flexible and transparent around disclosing features and specifications to customers prior to a formal product release, according to Patrick Leonard, vice president and chief operating officer at My IT.

The Metairie, Louis.-based MSP had been able to provide other RMM vendors with suggestions and proposed fixes for products before they go on the market, according to Leonard, who hopes to be able to do the same for N-able once it becomes privately owned.

Leonard said the more relaxed financial regulations for private firms should allow both N-able and SolarWinds to build better products and compete more vigorously in the market.

"I think it's a great thing for N-able to go private," Leonard said.