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GI Partners sells SoftLayer to IBM

by contributor Jonathan Marino  |  Published June 5, 2013 at 9:47 AM
IBM227x128.jpgSoftLayer Technologies Inc., the Texas-based cloud infrastructure provider majority owned by private equity firm GI Partners, will be acquired by New York tech company IBM Corp.

Specifics of the deal were not publicized, but one source familiar with the transaction estimated the price tag to be approximately $2 billion. The New York Times first reported the deal's cost.

The deal is set to close in the third quarter.

IBM, led by chairwoman and CEO Virginia Rometty, also announced Tuesday that it would launch a new cloud services platform that will incorporate SoftLayer's offerings with IBM's SmartCloud.

The latest series of moves for the Aramonk, N.Y.-based tech titan is seen as an effort to directly compete with companies such as Inc., which, with its Web services platform, has developed a multibillion-dollar business through services such as Web marketing, cloud infrastructure and data analysis. "Competitors are going to need M&A like this to keep pace with Amazon" Web services, one industry insider suggested.

GI Partners acquired SoftLayer along with the company's management in an August 2010 deal; the PE firm would later merge it with DH Capital LLC was financial adviser to the company when it was first acquired by GI Partners.

The Daily Deal reported in January that GI Partners, as majority stakeholder, had begun testing the market for a sale of SoftLayer and that the anticipated deal value of the company ranged from $1.5 billion to $2 billion.

Past deals in the space include last year's Cogeco Cable Inc.'s deal for Peer 1 Network Enterprises Inc., at 13 to 15 times Ebitda, and CenturyLink Inc.'s $3.2 billion deal for Savvis Inc. in 2011, at 9 to 11 times Ebitda.

A Moody's Investors Service report projected SoftLayer would generate $425 million in 2013 revenue.

IBM's deal comes as M&A in the tech industry has bolstered otherwise uninspiring deal volume and values for 2013. With leveraged buyouts of companies including BMC Software Inc., Websense Inc. and Dell Inc., public markets have more often seen underperforming technology companies being removed from exchanges, than strategics striking deals for private companies.

However, that could be changing, especially as technology and competition force more and more companies to compete on mobile platforms: Salesforce Inc. agreed Tuesday to buy out marketing software company ExactTarget Inc. for $2.5 billion.

IBM generally doesn't use financial advisers, but took legal advice from Cravath, Swaine & Moore LLP's Eric Schiele. SoftLayer turned to Chris Bartlett at Morgan Stanley for financial advice and a Kirkland & Ellis LLP team including David Breach, Travis Nelson, John Lynn and associate Amber Meek for legal counsel. n­

--Chris Nolter and David Marcus contributed to this report.
Tags: | BMC Software | CenturyLink | Cogeco Cable | Dell | DH Capital | ExactTarget | GI Partners | IBM | Moody's Investors Service | Peer 1 Network Enterprises | Salesforce | SmartCloud | SoftLayer Technologies | | Virginia Rometty | Websense

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