Trade Resources Industry Views BMC Software Is Set to Be Taken Private in a Takeover

BMC Software Is Set to Be Taken Private in a Takeover

While Michael Dell struggles to take his eponymously named hardware vendor private, BMC Software is set to be taken private in a takeover by a consortium of private equity interests.

BMC, best known for its systems management software, has effectively been put up for sale, with KKR & Co and TPG Capital teaming up to form a consortium to bid for the company, and Bain Capital and Golden Gate Capital also joining forces to enter a bid.

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A third bidder includes Thoma Bravo.

The company was forced to put itself on the block following the intervention of "activist" hedge fund Elliott Management, which has also been instrumental in forcing BMC's rival, Compuware, to put itself up for sale.

Elliott attacked BMC's management late last year, arguing that it had been slow to recognise the opportunity of the internet and software-as-a-service (SaaS) - a charge BMC's management admitted - and that the company was inefficiently run with a headcount that could be trimmed.

Elliott, which owned some 9.6 per cent of BMC according to a 30 January regulatory filing, also called for the board to be replaced so that the company could be reinvigorated with "fresh thinking".

BMC's immediate response was to launch a $1bn (£660m) share buyback.

However, sales have suffered due to a combination of the uncertainty wrought by the buy-out talk, and the impact of competition from the cloud. In the nine-months to the end of February, BMC saw software licence sales down by 4.8 per cent to $613.1m (£403.4m), although overall revenues were up slightly, up 1.6 per cent to $1.63bn (£1.07bn).

Any acquisition of BMC Software, though, will be around its current share price range, according to analysts such as Abhey Lamba of Mizuho Securities, who has suggested a price range of $45-$47 (£29.60-£30.92) per share, valuing the company at around $6.5bn ($4.27bn).

Elliott Management is run by Paul Singer. According to The Guardian newspaper, "Elliott's principal investment strategy is buying distressed debt cheaply and selling it at a profit or suing for full payment."

He made his reputation as an investor, though, by recognising the bubble in the US housing market and the risk attached to collateralised debt obligations (CDOs), publicising his belief in 2006, a year before the crash in the US housing market and two years before the global financial crisis struck.

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BMC Software to Go Private as Private Equity Firms Form Buy-out Consortiums