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Is Symantec (SYMC) Mulling Over the Buyout of LifeLock?

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Cybersecurity firm Symantec Corporation (SYMC - Free Report) is reportedly one of the potential bidders for Tempe, AZ-based LifeLock Inc. . The other potential bidders’ names making the headlines are private equity firms, TPG Capital and Permira.

The financial data provider, Bloomberg was the first to break the news on Nov 11 wherein it revealed that LifeLock is in talks with several parties and TPG Capital is one of them. Goldman Sachs Group Inc. (GS - Free Report) has reportedly been hired by LifeLock for consultation about the sale.

Per Bloomberg, the first round of bidding may commence this month and will value LifeLock at approximately $2 billion. Notably, since Bloomberg’s last Friday report, shares of LifeLock have gained over 16% so far.

About LifeLock

Founded in 2005 by Robert J. Maynard and Todd Davis, LifeLock offers identity theft protection services primarily in the United States. The company got itself listed in 2012 and currently has over 4.4 million customers. In June this year, Elliott Management Corp. unveiled that it owns 11% stake in the company.

The company, under its consumer segment, protects subscribers through monitoring identity-related events, such as new account openings and credit-related applications. Under the enterprise segment, it protects customers through delivering on-demand identity risk and authentication information about consumers.

Its customers include financial institutions, telecommunication and cable services providers, government agencies, technology companies, large retailers, automobile and mortgage lenders, and e-commerce providers.

Acquisition Makes Sense for Symantec

In our opinion, the acquisition will be a strategic fit for Symantec, which is trying hard to expand its business in the high growth areas of next-generation cybersecurity space. The acquisition will help Symantec enhance its capabilities in the identity protection services which is currently a major concern for almost every sector, be it financial institutions, retailers, technology companies, etc.

Apart from this, the acquisition will broaden Symantec’s customer base. The company has an existing customer base of over 65 million. Therefore, we consider that the buyout will not only enhance the value of Symantec’s identity management platform but will also be immediately accretive to its top- and bottom-line results.

Furthermore, Symantec has huge available cash to undertake the acquisition. At second-quarter fiscal 2017 end, the company had cash, cash equivalents and short-term investments of $5.619 billion. Therefore, it need not borrow from outside to fund the acquisition.

Bottom Line

Of late, Symantec’s top and bottom lines have been under pressure due to persistent weakness in PC sales and loss of market share in the data storage segment to other rivals. Additionally, intensifying competition from Palo-Alto Networks and FireEye has been eroding its market share in the enterprise segment.

As a result, the company has been aggressively restructuring its business. In doing so, on Jan 29, the company closed the sale of its Veritas business for $7.4 billion to Carlyle Group. We believe that the deal has provided Symantec with much-needed funds to invest in the fast growing markets.

The sale of the Veritas business provided Symantec with the financial flexibility to take the acquisition route to transform its struggling business. In August this year, the company completed the acquisition of Blue Coat, a leading web security solution provider, from private equity firm Bain Capital for a total cash consideration of $4.65 billion. Blue Coat’s security solutions allow organizations to protect their web gateways from cyber-attacks.

We believe that these acquisitions will enable Symantec to strengthen its position in the enterprise security market.

However, it should be noted that the news is merely a speculation at this point. Therefore, it will be too early to judge the actual benefits of the acquisition for Symantec.

Currently, Symantec carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A better-ranked cybersecurity stock is Check Point Software (CHKP - Free Report) , which carries a Zacks Rank #2 (Buy).The stock witnessed upward estimate revisions in the last 30 days and has surpassed the Zacks Consensus Estimate thrice in the trailing four quarters with an average positive surprise of 3.55%.

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