Private Equity Blockbuster: Riverbed To Be Acquired For $3.6 Billion

Riverbed Technology said Monday it is set to be acquired for $3.6 billion in cash by two private equity firms -- Thoma Bravo and Teachers' Private Capital.

The deal, which will be the largest acquisition ever for enterprise-tech-focused Thoma Bravo, will allow Riverbed to break away from a slowdown in growth of the WAN acceleration market to reach the company's "next level of growth," said Jerry Kennelly, chairman and CEO of Riverbed, in a statement.

[Related: Partners Worry About Riverbed's Future After It Sells SteelStore To NetApp ]

The acquisition, which is expected to close in the first half of 2015, brings an end to months of speculation about Riverbed's future. Over the past year, Riverbed has been courted by a number of hopefuls, including activist investor Elliott Management, which in January 2014 made a $3.1 billion bid to acquire the company.

The acquisition was unanimously approved by Riverbed’s board of directors following a comprehensive review of strategic and financial alternatives that the company initiated in October.

’We are extremely pleased with this transaction, which we believe will be a winning proposition for all of our stakeholders," said Kennelly in a prepared statement. "Thoma Bravo is a highly regarded private equity firm with deep experience in the technology industry and a 30-year track record of helping companies like ours flourish," he said.

Meanwhile, class-action securities law firm Rigrodsky & Long P.A. already has revealed it is investigating "whether Riverbed's board of directors failed to adequately shop the company and obtain the best possible value for Riverbed's shareholders before entering into an agreement with Thoma Bravo."

Riverbed, which specializes in WAN optimization within traditional IT infrastructures, has been attempting to push into new markets, including the adoption of hybrid enterprises and hybrid clouds. Kennelly will remain with the company in the same capacity, according to the company.

Last month, Kennelly told partners at its Riverbed Force conference that customers were evolving beyond an enterprise once dominated by hard-wired routers and switches and that it would shift focus to software-defined networks and software-defined data centers.

Thoma Bravo must make sure it aggressively communicates its intentions with regard to channel commitment in the midst of the acquisition, said Bob Venero, CEO of Holbrook, N.Y.-based solution provider Future Tech, a Riverbed partner that is No. 234 on the CRN Solution Provider 500 list.

"We have had a lot of success with Riverbed," said Venero. "They have been a very channel-friendly company. What Thoma Bravo needs to do is overcommunicate to the partner community with regard to what the channel direction of the company is going to be with the acquisition."

In more than 60 percent of cases, companies making a strategic acquisition fail to communicate with channel partners about the company's direction and sales suffer, said Venero. "We have done the statistics ourselves and found that, more often than not, companies are too focused on integration and logistics and they fail to look at the sales engine that drive their revenue and profits as well as the perception in the market," he said. "As a result, the sales of the company end up falling because the uncertainty creates FUD."

NEXT: Partners Hopeful Channel Commitment Will Increase

Venero said he is hopeful that channel commitment will increase under Thoma Bravo given the strong double-digit Riverbed sales growth his company has seen over the past several years. "Our hope is they will continue down that path and focus on growth rather than trying to reduce costs and squeeze profitability," he said.

Riverbed competes in an an intensely competitive market with the likes of networking giant Cisco Systems, Dell and a number of startup companies, said Venero.

One reason for the large number of companies making big moves in the wake of financial pressure from investors is the sorry state of the economy, said Venero. "Because the economy is not in good shape, companies are looking at how they can squeeze dollars and stockholders are looking at how they can make a better return on their investments," he said.

Thoma Bravo has been deeply invested in the security industry in recent years with key investments in network security vendor Blue Coat Systems, LANDesk Software, SaaS-based identity and access management vendor Sailpoint Technologies, and disaster recovery vendor Vision Solutions. Riverbed, which traditionally has focused on application performance, has a growing Web application firewall product designed to protect Web applications from threats.

That could be a big boost for Thoma Bravo, which has been beefing up its security portfolio. For example, Blue Coat Systems, one of Thoma Bravo’s biggest security industry investments, recently hired Intel security senior vice president and chief technology officer Michael Fey and said the senior executive would oversee product integration as well as continued acquisitions to build out a complete portfolio.

Blue Coat is missing an endpoint component and could add it through acquisition to compete against other network security vendors, including Palo Alto Networks and FireEye, which recently added endpoint visibility to their platforms, said Rick Holland, principal analyst at Forrester Research. ’If they want to be competitive against many of the main players in the space today they need an endpoint story,’ Holland said.

Just one week before the Riverbed deal, Thoma Bravo said it was selling file integrity monitoring, compliance and log management vendor Tripwire to communications network manufacturer Belden in a $710 million deal.

Belden said the acquisition would enable it to bolster its industrial control systems security business. Thoma Bravo's previous security industry investments included digital certificate maker Entrust and network firewall appliance vendor SonicWall, acquired by Dell in 2012.

ROBERT WESTERVELT contributed to this story.

PUBLISHED DEC. 15, 2014