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Peter A. Sokoloff & Co. regularly analyzes transactions which occur within the industries covered. An archive of these case studies is kept online as a courtesy to our colleagues. To receive by e-mail new case studies as they are prepared, please e-mail bwalko@sokoloffco.com with your contact information.

Archives > Transaction Case Study 22

SafeNet to be acquired by Vector Capital

Dear Colleague,

On March 5, 2007, SafeNet, Inc. (NASDAQ:SFNT), announced that it had entered into a definitive agreement to be acquired by an investor group led by Vector Capital in a transaction valued at approximately $634 million.

SafeNet is in information security. Founded more than 20 years ago, the company provides security utilizing its encryption technologies to protect communications, intellectual property and digital identities, and offers a full spectrum of products including hardware, software, and chips to enterprise and government. Vector Capital is a private equity firm specializing in buyouts, spinouts and recapitalizations of established technology businesses in the private and public markets.

SafeNet has not filed its recent reports because of a restatement process, but did issue a recent guidance anticipating full year 2006 revenues at $318-$326 million. Based upon the purchase price of $634 million and the last filed report by SFNT (for the Quarter ending March 31, 2006), SafeNet’s Enterprise Value is $555.52 million. Thus the transaction is estimated to about 1.70x revenue and 14.8x EBITDA.

The common stock cash price of $28.75 per share price represents a premium of 12% over the SafeNet average closing share price during the 30 trading days ended March 2, 2007 and a 57% premium over its closing stock price on October 2, 2006, the last date before the Company commenced intensive efforts to explore its strategic alternatives.

The Board of Directors of SafeNet unanimously approved the definitive agreement and recommends that shareholders tender their shares into the tender offer. Members of SafeNet's Board have agreed to tender their shares.

The tender offer is conditioned upon, among other things, approximately 78% of SafeNet's shares being tendered in the offer based on the current shares and options outstanding. If the Company becomes current in its SEC filings, the minimum tender condition will be reduced to a majority of the fully diluted eligible shares. Provided that the minimum tender condition is met, the transaction is expected to be completed during the second quarter of 2007, subject to customary closing conditions and regulatory approvals. There can be no assurance that the transaction will be approved or consummated.

Walter Straub, SafeNet's Chairman and CEO, said, "Over the past five months, our Board of Directors engaged in an extremely thorough review of all strategic options available to the Company, including a broad solicitation process that resulted in significant competitive interest in our Company. Based on this comprehensive process, the Board determined that being acquired by Vector Capital and its partners represents a compelling opportunity that is in the best interest of our shareholders, customers and employees. In Vector, we have identified a partner that is committed to assisting the Company to fully realize its opportunities while we continue to address our issues and build momentum in our business."

Chris Nicholson, a Partner at Vector, said, "SafeNet's full suite of leading government and industry security solutions uniquely position the Company with its strong customer base, and we look forward to working with SafeNet's talented employees and management team to build lasting value for the Company and its customers."

David Fishman, a Principal at Vector commented, "The challenges of being a public company today can sometimes inhibit growth in companies like SafeNet. We believe SafeNet will significantly benefit from being a private company, and will be in a better position to help achieve its goal of providing leading security solutions to both its Government and Commercial customers."

We hope that you find this feature from Sokoloff & Co. interesting, informative and useful.  We welcome your comments and suggestions.

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