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SolarWinds: Inside the $4.5B Buyout

How did Silver Lake and Thoma Bravo LLC acquire SolarWinds and the N-able MSP software business for $4.5 billion? Here’s the untold story — spanning 66 days of intense negotiations, a lineup of at least nine potential suitors, multiple bids from at least five companies, and the very moment that Silver Lake and Thoma Bravo finally combined forces on the blockbuster deal.

For MSPs and channel partners, specific details of the SolarWinds buyout — how and why it unfolded — are particularly important. The day-by-day timeline below shows that SolarWinds was negotiating from a position of strength with multiple bidders. The details, culled from an SEC filing, also reinforce that bidders were pursuing the entire company — including SolarWinds’ N-able division, which works closely with MSPs.

Got Time to Meet?

kevin-thompson-2

Kevin Thompson

The buyout story, as documented by an SEC filing reviewed by ChannelE2E, starts innocently enough. Like most IT companies, SolarWinds meets regularly with investors and strategic partners to discuss the IT market, business scenarios and more.

One of those meetings occurred on Aug. 6, 2015 — when SolarWinds CEO Kevin Thompson met with a representative of Thoma Bravo — at the request of Thoma Bravo. It seemed like a typical check-in discussion. A potential buyout was not discussed at that meeting.

Day 1: The Dance Suddenly Begins

It turns out, Thoma Bravo’s “check in” with Thompson was more than a typical house call. Fast forward to Monday, August 17, 2015. That’s when Thoma Bravo representatives dialed Thompson, stating that the private equity firm wanted to buy SolarWinds. On the same day, Thoma Bravo delivered an unsolicited letter of intent to acquire SolarWinds for $52 per share in cash — a 23.9% premium to the closing price of SolarWinds’ stock as of August 14, 2015.

It was a straightforward offer. But this wouldn’t be a straightforward negotiation. The Thoma Bravo bid triggered a journey of discovery for SolarWinds’ board and its financial and legal advisors.

Jason Ream

Jason Ream

Day 3 (Wednesday, August 19, 2015): SolarWinds CFO Jason Ream spoke with Thoma Bravo — seeking more information to help SolarWinds’ board consider the offer.

Day 9 (Tuesday, August 25, 2015): SolarWinds’ board met on a teleconference to discuss Thoma Bravo’s proposal. The board, management and legal advisors discussed a range of items — valuation, operating performance, challenges and opportunities, Thoma Bravo’s ability to complete the transaction and much more.

The key action item: SolarWinds decided to retain a financial advisor — JP Morgan — to evaluate the takeover offer and various options. SolarWinds told Thoma Bravo to stay tuned for an update following an early September board meeting.

Day 23 (Tuesday, September 8, 2015):  SolarWinds board huddled again, this time at a regularly scheduled meeting. JP Morgan was officially recruited to become SolarWinds’ financial advisor. In addition to discussing the Thoma Bravo offer, the board discussed different buyout scenarios and potential suitors for the company.

More Buyers, More Scenarios?

Day 24 (Wednesday, September 9, 2015): The two-day SolarWinds board meeting continues. Here again, the board and JP Morgan discussed the Thoma Bravo offer and several other potential buyout scenarios. The board began to pinpoint hypothetical suitors beyond Thoma Bravo — including Silver Lake Partners and two other firms that SolarWinds has not disclosed by name (known only as “Sponsor C” and “Sponsor D”).

scorecard-solarwindsSoftware Suitors?: SolarWinds’ board also considered potential “strategic acquirers” — which likely describes software companies that could swallow the IT management company. The challenge: At least two of those “strategic” players apparently were private equity owned, so SolarWinds opted instead to first pursue potential private equity suitors.

The Cloud and Revenues: In a key SolarWinds presentation to the board, SolarWinds executives described three possible financial scenarios — a low case, a mid case and a high case — if the company remained independent. The board and SolarWinds management also discussed the company’s product and technology road-map, the transition from on-premise to cloud technologies and the impact on bookings, license, maintenance and subscription revenue, revenue retention and spending and expenses.

Based on numerous variables, the board believed the mid case for revenues was the most likely outcome if the company remained independent.

Reaching Out to Four Potential Buyers

After the September 8-9 board meetings, the board instructed JP Morgan to contact four potential buyers — Thoma Bravo, Silver Lake Partners, Sponsor C and Sponsor D — to gauge their interest in a potential buyout.

The Weeks of September 14, 2015 and September 21, 2015: Now the SolarWinds buyout dance really accelerated — with multiple partners. During private, non-disclosure discussions, SolarWinds  hosted management presentations with each of the four potential suitors. The four potential buyers, if interested, were required to submit initial bids by September 25, 2015.

Day 40 (Friday, September 25, 2015) — Four Bids Arrive: Each of the four potential suitors submitted bids. They included:

  • Silver Lake Partners at $57 to $59 per share.
  • Thoma Bravo at $54 per share.
  • Sponsor C at $54 per share.
  • Sponsor D at $52 per share.

Weekend Board Meeting: More Bidders, Potential Alliances

Day 41 (Saturday, September 26, 2015): During a SolarWinds board meeting, JP Morgan described additional buyout scenarios that were emerging:

  • Two additional bidders (Sponsor E and Sponsor F) wanted to pursue a SolarWinds buyout — potentially bringing a total of six suitors to the bidding table.
  • Silver Lake wanted permission to work with Sponsor C (still unnamed) on a joint bid.

At the board’s direction, JP Morgan next took the following steps:

  • Contact the existing financial sponsors (Silver Lake, Thoma Bravo, Sponsor C and Sponsor D) to see if they could improve their offers.
  • Tell Silver Lake and Sponsor C that they were permitted to speak with one another only if Sponsor C increased its offer (currently $54 per share) to match the offer of Silver Lake ($57 to $59 per share).
  • Do not invite the two other potential suitors (Sponsors E and F) to the negotiating party just yet.

Later that same day, Sponsor D submitted a revised written indication of interest offering $57.50 per share.

Day 43 (Monday, September 28, 2015): New bids and updated statements from the private equity firms arrived.

  • Silver Lake verbally reaffirmed its offer of $57 to $59 per share.
  • Thoma Bravo improved its offer to $57 per share, up from the previous $54 per share.
  • Sponsor C submitted a revised written indication of interest offering $57 per share, up from the previous $54 per share.
  • Sponsor D was still in the game at $57.50 per share.

Expanding to Nine Potential Bidders?

Later that same day (Monday, Sept. 28), the board held a special meeting — once again weighing current financial conditions, forecasts and other pros and cons related to remaining independent vs. selling the company. Based on all the variables, the board instructed JP Morgan to pursue final buyout bids by October 26, 2015.

Also on Sept. 28, the Board instructed JP Morgan to invite the other two suitors (Sponsor E and Sponsor F) into the sale process, and to pursue three additional potential strategic buyers in the process (“Strategic C”, “Strategic D” and “Strategic E”).

At that point on Sept. 28, there were nine potential suitors for the company, four of which had already made a bid for the company, according to ChannelE2E’s interpretation of SEC filings:

  1. Silver Lake Partners, bidding $57 to $59 per share
  2. Thoma Bravo, offering $57 per share
  3. Sponsor C, offering $57 per share
  4. Sponsor D, offering $57.50 per share
  5. Sponsor E, which expressed unsolicited interest in the company but had yet to bid
  6. Sponsor F, which also expressed unsolicited interest in the company but had yet to bid
  7. Strategic C, likely a software company that SolarWinds wanted to contact
  8. Strategic D, also likely a software company that SolarWinds wanted to contact
  9. Strategic E, also likely a software company that SolarWinds wanted to contact

Day 44 (Tuesday, September 29): Sponsor C submitted a revised indication of interest which matched Silver Lake’s offer of $57 to $59 per share and was permitted to speak with Silver Lake regarding forming the Silver Lake / Sponsor C Group.

Between September 29, 2015 and October 16, 2015, SolarWinds conducted conference calls and in-person management presentations, and shared due diligence information with all of the active bidders and their potential financing partners.

Two More Potential Suitors Emerge?

Day 45 (Wednesday, September 30, 2015): Two additional financial sponsors not previously contacted by SolarWinds (call them “Sponsor G” and “Sponsor H”) contacted JP Morgan to inquire about the sale process.

Sponsor G later elected not to become involved in the sale process. Sponsor H requested to be considered as a potential partner if an existing bidder indicated a desire to form an equity consortium. Sponsor E requested to be considered as a potential partner if an existing bidder indicated a desire to form an equity consortium.

Day 46 (Thursday, October 1, 2015): SolarWinds conducted an in-person management presentation with Sponsor F.

Day 47 (Friday, October 2, 2015): Strategic C notified J.P. Morgan that it would not be interested in pursuing a SolarWinds buyout.

A Fifth Official Bidder Emerges

Day 48 (Saturday, October 3, 2015): At this point, SolarWinds still had four bids on the table:

  1. Silver Lake Partners, bidding $57 to $59 per share
  2. Thoma Bravo, offering $57 per share
  3. Sponsor C, which had upped its offer to $57 to $59 per share
  4. Sponsor D, offering $57.50 per share

Then came the fifth bidder: Sponsor F submitted a written indication of interest for an all-cash acquisition of the company for $57 per share. That same day, Strategic E — likely a software company, ChannelE2E believes — indicated a desire to engage in an exploratory buyout conversation with SolarWinds.

Continue to Page 2 for the Final Negotiations

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