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Why Did Symantec Take a $500 Million Investment?

Symantec is the king of tech security. Yet the Norton antivirus software maker just took a $500 million strategic investment from Silver Lake Partners, a firm known for making technology investments in companies like Dell. The question is why?

Why exactly would the king of tech security need such a massive amount of cash from an outside investor? Has something gone wrong inside the company’s software machine? What does this investment ultimately mean for users?

We asked Rob Enderle, principal analyst at the Enderle Group, for some answers. He told us sometimes stable companies like Symantec take outside investments to showcase that a quality firm with strong financial skills thinks the brand is a good bet. The goal in that scenario is to get financial analysts and investors at large more interested in the property, Enderle said.

“It makes it look like there is some really good news on the horizon which only someone in the know has access to or has figured out. That may be an attempt to break the company up for its parts and sell some or all of those parts to other Silver Lake investments,” Enderle said. “But clearly Silver Lake sees a value here and that may be enough to drive interest back into this property.”

Symantec’s Motive?

Earlier this week, Symantec reported net income of $170 million, or 25 cents a share, in the fiscal third quarter of 2016. That compares to $222 million, or 32 cents a share, in the year-ago period. Revenue hit $990 million, that’s up $20 million from a year ago, beating analyst expectations of $906 million, according to a Marketwatch report citing FactSet.

But can the company keep up those numbers given the PC forecast? Although 71 million units shipped in the third quarter of 2015, that number marks a year-over-year decline of almost 11 percent — even worse than the 9.2 percent decline analysts predicted, according to market research firm IDC. That means fewer machines on which to install Symantec’s software.

“The PC market continues to contract as expected, but we remain optimistic about future shipments,” said Jay Chou, research manager for IDC Worldwide PC Tracker, in October. “While PC shipments will be hampered in the short run by the availability of a free upgrade to Windows 10, the improved PC experience across user segments should drive longer-term demand for new PC hardware that is expected to help stabilize the market in 2016 and beyond.”

Meanwhile, the cybersecurity market continues growing. According to research firm Markets and Markets, the cybersecurity industry will be worth $170.21 billion by 2020. The reason: increasingly stricter government regulations and evolving cybercrime threats that demand companies focus on cybersecurity solutions.

“As a premier cybersecurity provider, Symantec has the potential to solve some of the most significant challenges facing the rapidly growing market for security solutions,” said Ken Hao, managing partner of Silver Lake, in a statement. “We look forward to partnering with Symantec to achieve its long-term strategic vision.”

What Silver Lake Gets

Symantec could also be looking to make investors happier. The company will return to shareholders funds that represent all of the after-tax proceeds from the recent $8 billion sale of Veritas to a Carlysle-led investment group. The $5.5 billion capital return should be complete by the end of March 2017.

The return includes a $500 million accelerated share repurchase completed in January 2016, a $4 per share dividend totaling $2.7 billion payable in March, along with $2.3 billion in future share repurchases. That’s on top of Symantec’s regular quarterly dividend.

Silver Lake is purchasing $500 million aggregate principal amount of 2.5 percent convertible senior unsecured notes due 2021 with an initial conversion price of $21.00 per share, according to the terms of the agreement. The company also said it is trying to drive cost savings of about $400 million by the end of its 2018 fiscal year.

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