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Unstoppable virus

11 August 2015 By Jeffrey Goldfarb

Symantec is revealing the truth about tech M&A. Offloading its data storage and recovery business Veritas for $8 billion to buyout firm Carlyle and Singapore’s GIC ends a decade-long disaster of a deal. Like Hewlett-Packard, Microsoft and others, Symantec discovered it can be harder to buy than build. The resulting carve-ups and writedowns, though, have a tendency to perpetuate the problem.

The original $13.5 billion all-stock acquisition of Veritas that Symantec struck back in December 2004 was an unqualified bust. The company botched the integration, hurting sales. By the time it clawed its way back, the financial crisis hit in 2008. A new boss then came along with a strategy focused on security, not storage. Since the deal was announced, Symantec shares have tumbled by almost a third against a 135 percent rise for the Nasdaq.

Veritas should get a fresh life under new owners. The price tag suggests a whopping 16 times the division’s $486 million of reported operating income in the year to March 31. The multiple, though, works out closer to nine times EBITDA after some marketing and other costs are stripped out and left behind at Symantec. Certain tax breaks will make the deal even cheaper. Carlyle also has been savvy about adopting unloved orphans from distracted parents. Axalta Coating Systems, the former DuPont unit, is one recent example.

Symantec joins a technology breakup party in full swing, with HP, JDS Uniphase and eBay among the revelers. Microsoft last month conceded its $9.5 billion Nokia purchase was all but a washout, writing off most of what it paid for the Finnish mobile phone company. In many cases, the mega-deals being unwound reflect an ill-advised quest to prove that bigger is better.

Splits, sales and spinoffs often help restore some of the eradicated value. The trouble is that with fresh cash in hand or the slate wiped clean from an old deal, there is almost always a wide-eyed desire for a new one. Microsoft, for example, recently considered buying Salesforce.com for some $55 billion. Symantec says in addition to giving a portion of the $6.3 billion of Veritas net proceeds back to shareholders, it also will be on the hunt for “inorganic investments.” The cycle is clearly hard to break.



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