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Transaction
Case Studies

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 67

SOKOLOFF & COMPANY CASE STUDY
Riverbed Technology (NASDAQ: RVBD)
acquires OPNET Technologies, Inc. (NASDAQ: OPNT)

DATE ANNOUNCED:  October 29, 2012
BUYER:  Riverbed Technology (NASDAQ: RVBD)  
SELLER: OPNET Technologies, Inc. (NASDAQ: OPNT)   
PURCHASE PRICE:  $43 per share
FORM OF PURCHASE PRICE:  Cash and stock, $36.55 in cash and .2774 share of RVBD stock

SELLER’S FINANCIAL INFORMATION AND M&A MULTIPLES

Year 2010 2011 Trailing Twelve Months
throughJune 30, 2012

Revenue

$126.35M

$147.99M

$176.50M

EBITDA

$13.38M

$24.49M

$34.425M

Cash

 

 

$102.37M

Debt

 

 

0

Purchase Price

 

 

$1.0 Billion

Enterprise Value

 

 

$921.0 Million

Multiple of Revenue

 

 

5.21

Multiple of EBITDA

 

 

26.75

TRANSACTION DRIVERS:  The acquisition enables Riverbed to extend its network performance management (NPM) business into the multi-billion dollar application performance management (APM) market.    The addition of OPNET gives Riverbed the ability to provide customers with a unique integrated solution that not only monitors network and application performance, but also accelerates it.  "The addition of OPNET establishes Riverbed as the clear leader in the high-growth and converging application and network performance management markets,” said Jerry Kennelly, Chairman and CEO at Riverbed. “This acquisition also transforms Riverbed into a billion dollar revenue company."

SOKOLOFF COMMENTARY:
Courage.  That was the word that came to mind when we read about Jerry Kennelly’s aggressive play for OPNET.  At a time when many corporate chieftains have gone into ‘wait and see’ mode, too fearful to act strategically, Mr. Kennelly boldly bets on an upcoming explosion in application and network performance management.  In an uncertain economy, OPNET’s growth in the last year has slowed, making the purchase seem to some as exceedingly rich.  But wise industry observers know that - almost as likely as death and taxes - the unstoppable tides of bandwidth expansion, application problems and network attacks can bring any network to its knees. 

The expensive answer is more hardware, more bandwidth, more applications, more professional services and sometimes complete replacement of network elements.  OPNET and RVBD’s product approach has been to understand what is really happening and guide network and IT managers to the most elegant solutions at the least cost.  And future demand for such will only increase.
The challenge ahead as a billion dollar revenue company will be to increase margins while sustaining healthy growth and a 75%+ Gross Profit margin.  Both companies have somewhat anemic earnings margins which need to double or better in the next few years to retain stockholder confidence.   Analysts expect forward P/E multiples to drop into encouraging territory in the next 12-24 months.
There are lots of “ifs” – competition, continued cap ex malaise and stumbling as the businesses are integrated.  But it is exciting to see a CEO and board take a bold, calculated risk and we wish the combined companies much good fortune in times to come.

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