Blue Coat Systems Files For $100M IPO To Pay Off Debt, Make Product Investments

After four years under private equity ownership, Blue Coat Systems is once again eyeing the public market, filing a registration statement Friday for an up to $100 million initial public offering.

The official S-1 filing with the Securities and Exchange Commission is significantly below reports last week that said Blue Coat was looking to raise $500 million. The Sunnyvale, Calif.-based company, which offers an array of Web and cloud security solutions, did not say in the filing how many shares it planned to issue or the anticipated price.

The IPO would mark a return to the public market for Blue Coat, which went private in 2011 when it was acquired by private equity firm Thoma Bravo for $1.3 billion. Blue Coat changed ownership in March 2015 when it was acquired by private equity firm Bain Capital for $2.4 billion, a move CEO Gregory Clark said at the time would help position the security vendor for an IPO.

[Related: Report: Optiv Security To Seek IPO In Coming Months]

Blue Coat declined to comment to CRN on what the IPO would mean for partners.

With the filing, Blue Coat revealed continued losses and fluctuating revenue numbers. The security vendor reported revenues of $598.3 million for fiscal 2016, $631.3 million for 2015 and $606.5 million for 2014. Losses for 2016 were $281.1 million, a number that includes implications of the Bain acquisition. Blue Coat reported losses of $15.4 million and $51.3 million, respectively, for fiscal 2015 and 2014.

Blue Coat also revealed a significant amount of debt, amounting to more than $1.8 billion. The company said in the filing that it plans to use the funding raised from the IPO primarily to address its debt issues. The money that remains, if any, will be put toward acquisitions or product investments, the company said.

Michael Knight, president and chief technology officer at Encore Technology Group, a Greenville, S.C.-based Blue Coat partner, said the amount of debt held by the company was concerning, as he would rather see the security vendor invest in product development than paying off previous debts.

"With Blue Coat's current debt load, they will have to show that only a small amount of the hoped for $100 million will go toward reducing debt and a maximum amount would be put toward sustainable research and development and sales enablement strategies," Knight said in an email. "As a security vendor, research and development is not only critical but is paramount in maintaining value and relevancy so minimizing spend in that area would be disastrous and nothing happens without sales."

Knight said Blue Coat has made some progress in its transformation to become a serious cloud security contender, but needs to be careful not to "over rotate" when it comes to balancing its new cloud security offerings, many of which were acquired recently, with its more traditional portfolio. In particular, Knight said, Blue Coat should invest in building out its platform and single-pane-of-glass strategy, as that is what customers are demanding.

"In my opinion, Blue Coat would need to show a roadmap for consolidation and optimization of their different solutions with a focus on their core competencies," Knight said. "To attract partners, Blue Coat would need to show detailed organization and product roadmaps and provide a path for partners to make money while Blue Coat continues to operate profitably and reduce their debt."

Blue Coat said the ability for the company to grow its revenue and achieve profitability will depend "in large part" on its channel partners and sales force. The company said 84 percent of its sales in 2015 and 2016 were through distributors and 16 percent in those years was through direct resellers. Blue Coat said it will need to maintain existing channel partner relationships, as well as add and train new partners, to grow its revenue and enter new markets.

The move would make Blue Coat the second security company to seek its IPO this year, on the heels of Dell SecureWorks, which had an initial public offering in April. Reports have also said that security solution provider Optiv Security might be seeking an IPO later this year.

The IPO was underwritten by Morgan Stanley, J.P. Morgan, Credit Suisse and Goldman Sachs.