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Websense deal shows PE thirst for tech

by Taina Rosa and Jonathan Marino | Published May 21, 2013 at 9:39 AM

Websense Inc.'s shares were up almost 29% at $24.73 on Monday after it said Vista Equity Partners was taking the Web security company private for $24.75 per share, or $907 million.

On the day of the announcement, the stock traded as high as $24.78, a price it had not attained in almost two years.

The price per share the private equity firm offered is also much higher than the $15 to $20 price targets most company analysts had for Websense previous to the announcement.

The deal for Websense comes as private equity firms appear to be targeting listed technology companies for leveraged buyouts and paying hefty premiums for them, even those that have underperformed in the years following the financial crisis.

For example, news of the Websense transaction came only two weeks after Texas-based information technology management company BMC Software Inc. said it was being acquired by private equity firms Bain Capital LLC and Golden Gate Capital Corp. in a nearly $7 billion deal.

Both companies have underperformed compared to public markets in recent years, even as market watchers have insisted software and technology companies serving enterprise clients tend to outperform market swings long term.

In fact, in a year where tech M&A has outpaced most other sectors, LBO firms may increasingly target public market laggards for buyouts, sources suggest. One potential target is NetApp Inc., the Sunnyvale, Calif.-based storage and data management company. Last week, activist investor Elliott Management Corp. reportedly took a sizable stake in the company and began agitating for change.

San Diego-based Websense, headed by CEO John McCormack, provides Web, e-mail and data security solutions to protect an organization's data and users from cyber threats, malware attacks, information leaks, legal liability and productivity loss worldwide.

Before the take-private deal was announced, Websense had been suffering from declining year-over-year Ebitda and revenue. For the first quarter of 2013, the company posted Ebitda of $8.14 million on revenue of $87.50 million, down from Ebitda of $15.63 million on revenue of $89.52 million in the first quarter of 2012.

However, the company's billings are on an upswing, reaching $81.8 million in the first quarter of 2013, 1.5% higher than a year before, helped by the growth in billing for its Triton Solutions Web security product.

"Our Triton billings growth was generated by upselling our legacy filtering customers to Triton solutions, and increasing mix of Triton subscriptions that were up for renewal and then upselling those Triton customers to higher value Triton solutions, as well as continued growth in new logo business," Websense CFO Michael Newman said during the company's first-quarter earnings call.

The company, whose revenue growth has been affected by the declining sales trend for its legacy/original equipment manufacturing business, is now focusing on expanding Triton billings. In March, JPMorgan Securities LLC analysts said in a note that "about 60% of the installed base is already on Triton, which makes the installed base stickier as well as the dollar value higher."

The company has said it expects Triton to account for 80% of company billings "in the long term," up from a current 53%.

Websense went public in 2000, pricing 4 million shares at $18 each, above the expected $14 to $16 range.

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Websense deal shows PE thirst for tech

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Taina Rosa

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