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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 [email protected] with your contact information.

Archives > Transaction Case Study 58

SOKOLOFF & COMPANY CASE STUDY Tekelec to be acquired by group of PE Firms

BUYER:   A consortium led by SIRIS CAPITAL GROUP including the affiliates of THE COMVEST GROUP, funds and accounts managed by GSO CAPITAL PARTNERS LP, SANKATY ADVISORS, LLC, ZELNICK MEDIA & OTHER SIRIS LIMITED PARTNERS AND AFFILIATES.

SELLER:    TEKELEC (Nasdaq: TKLC)
DATE ANNOUNCED:  November 7, 2011
PURCHASE PRICE: $780 Million
FORM OF PURCHASE PRICE: $11 per share in cash

SELLER’S FINANCIAL INFORMATION AND M&A MULTIPLES


Year
2009 2010 Trailing Twelve Months
Year Ending
September 30, 2011

Revenue

469M

424M

400.90M

EBITDA

98M

115M

44.57M

Cash

 

 

270.46M

Debt

 

 

0

Purchase Price

 

 

780M

Enterprise Value

 

 

492.73M

Multiple of Revenue

 

 

1.23

Multiple of EBITDA

 

 

11.06

TRANSACTION DRIVERS
Ron Lange, CEO of TKLC, said the acquisition will provide them with “even greater flexibility to deliver best-in-class solutions for the mobile data & video management market.”  Merle Gilmore, the new executive chairman said it also allows Siris to acquire “market leading products in the signaling, policy, and diameter routing markets, a global customer base that includes 16 of the top 20 wireless service providers, and a highly skilled workforce.”

SOKOLOFF COMMENTARY:
It’s nice to see a group of Private Equity firms buy a company with an eye on the future rather than a look behind which has become so typical of the PE industry.  If they can close it without a competing offer, the $11 price should turn out to be a home run for the new owners.

TKLC is a market leader with acclaimed products for the communications industry.  The most recent accolade came on October 3rd, when an analyst at Current Analysis gave the Tekelec Policy Server an unprecedented Five-Star Product Review.  Earlier this year, Analysys Mason named Tekelec the "leading independent software vendor in the policy management segment" for the second consecutive year. Frost & Sullivan also recognized Tekelec's Diameter Signaling Router for the "New Product Innovation Award, Diameter Routing" for its superior ability to help operators overcome Diameter signaling challenges in LTE networks.

This positions TKLC to make major sales jumps as global operators seek to improve revenues and margins to pay for the huge cap ex requirements necessary to squeeze profits out of 4G and broadband pipes big enough to pass Niagara Falls.

As a prelude to the offer announcement, on October 19th, Tekelec revised its Q3 guidance upward, indicating it would show about three times the profit previously advised.  This caused the stock to spike by more than $2 from the previous $7 range and begin a rise to a point where it only jumped 11% on the November 7th offer announcement.  If the company can grow or even sustain this level of earnings in the year ahead, the multiple paid by Sirius and friends will drop considerably, making this a notably great deal, even for the flintiest of PE players.

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