Bengaluru/Boston: Blue Coat Systems, which makes equipment that secures, monitors and speeds internet traffic, has agreed to be taken private for $1.1 billion (Dh4 billion) in a deal that throws a lifeline to a company beset by falling sales and a US government probe into use of its products by Syria.
An investor group led by private equity firm Thoma Bravo offered Blue Coat $25.81 a share in cash, a 48 per cent premium to the stock's Thursday's close on Nasdaq.
Analysts said the acquisition comes as a relief to the company's shareholders, who have seen the stock drop 41 per cent this year.
"It was a company that was in decline and for Blue Coat shareholders there could not be any better news. They have definitely made a killing on this," ThinkEquity analyst Rajesh Ghai said.
The deal comes as the US Commerce Department probes whether the company's internet-blocking equipment is being used in Syria in violation of a strict US trade embargo.
Blue Coat has said that some of its equipment apparently had been "transferred illegally" to Syria, but that it did not know who was using the devices or how.
"We're cooperating with the authorities right now. That is where it stands. We fully complied with all the US export laws," Chief Marketing Officer Steve Daheb said on Friday.
The company's products are used by businesses and governments to speed up data flow over the internet and block inappropriate websites and possible cyber attacks.
ThinkEquity's Ghai reckons it would be difficult to establish Blue Coat's culpability in the Syria probe as the company sold its products through a network of resellers.
Blue Coat has been struggling to increase revenue amid growing competition from more nimble rivals including Juniper Networks, Brocade Communications and Riverbed Technology, which forced the company to replace its CEO in August.
The company became the subject of renewed takeover chatter after it entered into a standstill agreement with Elliott Associates in September.
The agreement was aimed at preventing the hedge fund from buying any more of the company's shares, or start merger or restructuring efforts before October 25. Elliott and its affiliates together owned about 13 per cent in stock and swaps at the time.
The agreement, which was later extended to December 10, allowed Blue Coat to share confidential information with Elliott, which could then evaluate strategic options for its investment.
Elliott was instrumental in getting the process moving, a source familiar with the deal told Reuters.
The hedge fund and the company go back several years, when Blue Coat trumped an Elliott offer for network device maker Packeteer.
"This is a terrific outcome for shareholders. Blue Coat has leading technology in good markets, and we are pleased this compelling value was recognised," Elliott said in a statement.
The technology sector is seeing a resurgence in deals as tech giants and private equity buyers eye mature companies that offer niche products and generate significant cash flows.
Tech-focused private equity firm Thoma Bravo's offer for Blue Coat follows a string of recent private equity deals.
Late last year, Novell was sold to Attachmate, owned by an investment group led by Francisco Partners, Golden Gate Capital and Thoma Bravo.
More recently, Lawson Software was acquired by GGC Software Holdings in a deal spearheaded by banker Michal Katz.
Large tech companies like Oracle and Germany's SAP are also scrambling to beef up their offerings in their race to become a one-stop shop for their customers.
Goldman Sachs is serving as financial adviser to Blue Coat. Thoma Bravo has received financing commitments from Jefferies Finance.
Blue Coat's shares, down 41 per cent this year, were up 44 per cent at $25.18 on the Nasdaq shortly before the close of trading on Friday.
WikiLeaks recently released documents, which it called SpyFiles, claiming they proved that Blue Coat sold technology to governments that was then used to prevent dissidents from organising online. In conjunction with the release of the documents, WikiLeaks published dozens of user manuals for Blue Coat products.
The company's spokesman, Steve Schick, said: "We're being put into a category that we think is not very accurate. Our products are being cast with all these things and that's not what our products do."
A representative of WikiLeaks could not be reached for comment.