The week-long speculation is finally over as cybersecurity firm Symantec Corporation (SYMC - Free Report) confirmed yesterday that it has entered into a definitive agreement to acquire Arizona-based LifeLock Inc. . The transaction is anticipated to close in the first calendar quarter of 2017, subject to customary closing conditions.
The offer is valued at $24 a share or $2.3 billion in enterprise value which Symantec will pay fully in cash. The acquisition will be funded partly with available cash and partly with a new debt of $750 million.
Citi and J.P. Morgan Securities, LLC are acting as co-lead financial advisors for Symantec while Goldman Sachs Group Inc. (GS - Free Report) has been hired by LifeLock as the financial advisor.
With this, the company has outbid other players like TPG Capital, Permira and Elliott Management Corp. that participated in the bidding race. Financial data provider Bloomberg was the first to break the news on Nov 11, when it revealed that LifeLock is in talks with several parties and TPG Capital is one of them.
Following the Nov 11 Bloomberg report, shares of LifeLock gained 17.6%. At last Friday’s closing price of $20.75, the offer price is valued at a premium of approximately 15.7%.
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, Elliott Management Corp. unveiled that it owns an 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 by 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.
Deal Makes Sense
In our opinion, the acquisition will be a strategic fit for Symantec, which is trying hard to expand its business in the high growth area of next-generation cybersecurity. The acquisition will help Symantec enhance its capabilities in identity protection which is currently a huge concern for almost every sector, be it financials, retail or technology.
Per Symantec, over 650 million people worldwide, including one-third of American citizens, were victims of cybercrime last year. The company also revealed that the digital safety market is anticipated to be approximately $10 billion while in the United States alone the total addressable market is projected to include 80 million people.
Therefore, we believe that the acquisition will enhance Symantec’s capabilities in identifying theft protection solutions, thereby enabling it to capitalize the growing opportunities in the space.
Apart from this, the acquisition will broaden Symantec’s customer base. The company has an existing customer base of over 65 million. Therefore, we believe that the buyout will not only enhance the value of Symantec’s identity management platform but will also be accretive to its top- and bottom-line results. Symantec expects the acquisition to be accretive to its non-GAAP earnings per share in fiscal 2019.
Per the company press release, “Symantec’s acquisition of LifeLock brings together the #1 leader in consumer security with a leading provider of identity protection and remediation services. The combination will create the world’s largest consumer security business with over $2.3 billion in annual revenue based on last fiscal year revenues for both companies.”
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 the much-needed funds to invest in 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, 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.
Currently, Symantec carries a Zacks Rank #4 (Sell).
A better-ranked stock in the broader technology sector is Cirrus Logic (CRUS - Free Report) , which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The stock witnessed upward estimate revisions in the last 30 days and surpassed the Zacks Consensus Estimate thrice in the trailing four quarters, with an average positive surprise of 53.68%.
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