Symantec to Acquire Blue Coat for $4.65 Billion

Consolidation in Enterprise Cybersecurity Market Continues as Symantec Announces Intent to Acquire Blue Coat Systems in Cash Deal

Security firms Symantec (NASDAQ:SYMC) and Blue Coat Systems announced on Sunday that they have entered into a definitive agreement under which Symantec will acquire Blue Coat for roughly $4.65 billion in cash.

The planned acquisition annoucement comes just days after Blue Coat filed an S-1 registration statement on June 2 with the U.S. Securities and Exchange Commission for a planned initial public offering (IPO).

After completing the sale of its Veritas information management (IM) business early this year, Symantec has become a pure-play cybersecurity company, and the company is now looking to expands its position in the enterprise market.

Greg Clark, Chief Executive Officer of Blue Coat, will be appointed Chief Executive Officer of Symantec and join the Symantec Board upon closing of the transaction, replacing Michael Brown, who was expected to step down as soon as a replacement had been found.

According to the joint announcement, the companies will combine Symantec’s threat telemetry with Blue Coat’s network and cloud security offerings. Additionally, Symantec’s data loss prevention technology will be applied at the web proxy and to more than 12,000 cloud applications.

“With this transaction, we will have the scale, portfolio and resources necessary to usher in a new era of innovation designed to help protect large customers and individual consumers against insider threats and sophisticated cybercriminals,” said Symantec Chariman Dan Schulman.

With more than 15,000 global customers, Blue Coat had GAAP revenue for fiscal year ending April 30, 2016 of $598 million and non-GAAP revenue of $755 million. The combined company would have had $4.4 billion in revenues in fiscal year 2016, with 62% of that revenue coming from enterprise security.

The combined company will be headquartered in Mountain View, California.

According to Bloomberg, citing a person familiar with the matter, Symantec had been in advanced talks to acquire FireEye earlier this year. Discussions reportedly broke down over concerns about FireEye’s future growth potential, the source said.

Founded in 1996 as CacheFlow, Blue Coat went public in 1999, but was taken private in a $1.3 billion buyout led by private equity firm Thoma Bravo in December 2011. It was later acquired by private equity firm Bain Capital in March 2015 for roughly $2.4 billion.  

Blue Coat, which historically has been known for its web gateway appliances and solutions for monitoring and filtering users’ Internet activity, has transformed significantly over the past years, mainly through a handful of acquisitions. Acquisitions by Blue Coat include Crossbeam Systems in December 2012 and Solera Networks in May 2013, along with snapping up the SSL appliance product line from Netronome the same month. In December 2013, Blue Coat acquired Norman Shark, a provider of malware analysis solutions. 

Blue Co
at has found itself under fire in the past after the University of Toronto’s Citizen Lab said devices from Blue Coat Systems were being used for Internet surveillance, filtering and censorship in several countries. After being criticized in 2011 for its technologies being used in Syria for Internet filtering and monitoring, Blue Coat issued a statement saying its devices ended up in Syria after an “unlawful diversion” and that its appliances “are not intended for surveillance purposes.”

David Humphrey, a Managing Director of Bain Capital Private Equity, will be appointed to Symantec’s Board of Directors, after the transaction has been completed.

Symantec said the transaction would be financed with cash and $2.8 billion of new debt.

Silver Lake has agreed to make an additional investment of $500 million, doubling its investment in Symantec to $1 billion. Additionally, Blue Coat majority shareholder Bain Capital has agreed to make an investment of $750 million in the company.

The transaction, subject to the satisfaction of customary closing conditions and regulatory approvals, is expected to be completed during Q3 2016.

While Symantec is looking to expand its position in the enterprise security space, it does have its eyes on other areas of Internet security. Just last week Symantec introduced a new IoT security solution specifically designed to protect connected vehicles from zero-day attacks and never-before-seen threats.