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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 [email protected] with your contact information.

Archives > Transaction Case Study 53

Carlyle to Acquire Syniverse

On Oct. 28, 2010 Syniverse Technologies (NYSE:SVR) announced that it had entered into a definitive agreement to be acquired by The Carlyle Group in a transaction which will take the company private for an Enterprise Valuation of approximately $2.6 billion. Carlyle will acquire all of the outstanding common shares of Syniverse for $31.00 per share in cash representing a premium of 35% over Syniverse’s average closing share price during the 30 trading days ended October 26, 2010. The transaction is expected to close in the first quarter of 2011.

On November 2nd SVR announced its Q3 results. Trailing Twelve Month (TTM) revenues were $591.4 million. TTM EBITDA was $254.4 million. Debt is $697.1 million. The Enterprise Value of $2.6 billion represents a TTM revenue multiple of 4.4x and a TTM EBITDA multiple of 10.22x.

Syniverse provides mobile roaming, messaging and network solutions to more than 800 mobile operators, cable and Internet providers, and enterprises in over 160 countries. Filtering through several acquisitions the company has made in the past, growth in the main business has been elusive as consumer prices have dropped and carrier customers have had to negotiate lower wholesale prices with Syniverse. Price reductions have been offset in part by traffic increases.

The deal has yielded an interesting twist regarding the “topping fee” which was negotiated. In the business of acquiring public companies a buyer will typically require that a fee be paid if a superior offer is made by another bidder. So, if the bid is “topped,” the buyer who acted as a stalking horse gets a consolation prize. There is a traditional topping fee of $60 million to be paid to Carlyle if Syniverse terminates or accepts a competing bid.

The twist is there is a “reverse termination fee” which puts the onus on Carlyle to close the deal or pay up. If Carlyle is unable to do so because of a financing failure or other fault, they will need to pay a $120 million fee to Syniverse. This fee is approximately 4.6 percent of the deal’s enterprise value. A reverse termination fee of $60 million is also payable in the case of a foreign antitrust failure or Carlyle’s failure to obtain Federal Trade Commission approval.

Within hours of the announcement a few law firms put out press releases that suggested the possibility of suit on behalf of shareholders that management accepted a price that “undervalues” the company. This may be a hard proposition to prove as other telecommunications software and services vendors generally trade at lower multiples. The multiples in the deal with Carlyle are in the same range as larger but similar software/services businesses like Oracle and VeriSign.

Syniverse was formerly known as Telecommunications Services Inc. (TSI), a subsidiary of GTE Communications, founded in 1987. GTE merged with Bell Atlantic in June 2000, becoming the entity known as Verizon. In February 2002, TSI was spun off to private equity firm GTCR for a price of $800 million. For the year ending December 31, 2001, TSI had $361 million in revenue and $124 million in EBITDA. Thus the revenue multiple was 2.2x and the EBITDA multiple was 6.45x. TSI had been experiencing about 15% historical growth.

In March 2004, TSI changed its name to Syniverse. It had its IPO in February 2005, with an opening price of $16.

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