Deal Reporter
Citrix seen considering LBO, other options, sector advisers say
* Citrix approached in past two weeks by GoTo suitors
* Range of options for co with lack of ‘clean' focus
Citrix Systems (NASDAQ:CTXS) is expected to explore a sale to private equity firms amid pressure from activist investor Elliott Management, three sector advisers said.
Earlier this month the well-known fund revealed a 7.1% stake and urged the Fort Lauderdale, Florida-based cloud computing company to take a number of actions to improve its value.
Elliott did not specifically call for a sale at Citrix but has a track record of pushing technology companies to pursue leveraged buyouts. Most recently, it spurred Informatica (NASDAQ:INFA) to sell after the software company had explored other options without being able to reach a deal.
Citrix representatives did not return requests for comment.
Two of the sector advisers cautioned the Citrix situation is at an early stage. They said, to their knowledge, no private equity firm has made a formal approach to Citrix, though the third adviser said he suspects financial sponsors have contacted the company in the past.
Companies like Citrix rarely rush to pursue a sale after an activist emerges and typically engage financial advisers first for defensive advice, a fourth sector adviser said. He said Citrix will likely examine a range of strategic options, including a recapitalization, asset sales or doing nothing.
Goldman Sachs, BofA Merrill Lynch, JPMorgan and RBC Capital Markets are among the banks Citrix has worked with in the past.
Citrix was not surprised by Elliott disclosing a stake in the company as it has faced operational issues that have weighed down its share price, the first adviser said. Prior to the Elliott news, shares were trading around the same level as in June 2014.
If a deal is pursued, Citrix would be one of the largest leveraged buyouts in the technology industry, surpassing the ongoing process for NCR (NYSE:NCR) but coming short of Dell’s massive take private. The company has around a USD 11bn enterprise value, assuming its USD 1.3bn in convertible notes are classified as debt.
Credit Suisse analysts have estimated the company could fetch USD 88 per share in an LBO or a USD 13.8bn enterprise value, roughly 14.7x estimated 2015 EBITDA.
Two of the sector advisers said Citrix does not trade cheaply and financial sponsors would have to write a big equity check to make a deal work. Citrix, though, is one of few sizable technology companies available for private equity to pursue, said the third sector adviser, who said he believes a deal is doable.
Strategics like Microsoft (NASDAQ:MSFT) and Cisco Systems (NASDAQ:CSCO) could also chase Citrix in the event a sale is launched, the first advisor said.
Meanwhile, Citrix could also look to divest some of its non-core assets such as the GoTo franchise, the third sector adviser said. Strategics have approached Citrix’s board and Elliott in the past two weeks to express interest in the business, the fourth sector adviser said was his understanding.
This business could fetch a valuation in the range of USD 2.5bn, and would also appeal to private equity buyers, the fourth sector adviser said. Logical strategic buyers of the GoTo business include Cisco, HP (NYSE:HPQ) and Dell.
Citrix may also look at selling its NetScaler business, which has a narrower strategic appeal, the same adviser said. Riverbed and Juniper Networks (NYSE:JNPR) may be interested in this business, he added.
The fourth advisor said he believed it would be difficult for Citrix to find a buyer for the entire business because it did not have a “clean” focus. It has a number of business lines and is more likely to assess selling parts of the business, he said.
Goldman Sachs analysts said in a recent note that they believe GoTo and NetScaler’s businesses have become “intertwined” and would be difficult to separate from the rest of the company.
In the 11 June letter addressed to the board, Elliott called for Citrix to explore alternatives for GoTo and NetScaler and to consider taking on net leverage to repurchase shares.