Another Thoma Bravo Deal Gets Challenged

Target: SonicWall Inc.

Price: $177 Million

Sponsor: Thoma Bravo LLC

In a sign of how competitive the market is becoming for deals, the buyout firm Thoma Bravo LLC has been challenged for the third time in 13 months by a strategic buyer with two financial sponsors behind it after already reaching an agreement with a target company.

In the latest case, the data security company SonicWall Inc., of San Jose, Calif., disclosed on June 22 that it had received a bid from a competitor after announcing June 2 that it had agreed to a $717 million buyout led by Thoma Bravo, which has offices in Chicago and San Francisco. SonicWall made the disclosure in a proxy statement that also announces the meeting for special shareholders to vote on the offer by Thoma Bravo and a co-investor, Teachers’ Private Capital (the private investor arm of the Ontario Teachers’ Pension Plan).

Another target, the medical imaging company Amicas Inc., slipped through Thoma Bravo’s fingers in April, when Merge Healthcare Inc. topped the firm’s offer of $217 million, or $5.35 a share, with a tender offer for $248 million, or $6.05 a share.

And a year earlier, after the security software vendor Entrust Inc. announced a $114 million deal in April 2009 to sell itself to Thoma Bravo at $1.85 per share, at least three unnamed rivals stepped up with higher, albeit speculative, offers for the Dallas company. In that case, however, Thoma Bravo was able to complete the acquisition at a sweetened price $124 million, or $2 per share, in July.

Unlike the two earlier deals, which featured “go-shop” provisions allowing the targets to seek higher bids, the SonicWall transaction appears to involve a legitimately hostile rival. The company’s proxy did not identify the bidder by name, calling it only “Strategic Party D, a privately held competitor,” which approached SonicWall on June 16 with an “unsolicited non-binding proposal” offering $12 a share and topping Thoma Bravo’s $11.50 bid.

The new rival said it expected the equity support of two financial sponsors that SonicWall had spoken with earlier, and that it was seeking debt financing for the deal. Although the board acknowledged that the new bid met the legal requirements to enter into further negotiations, the June 22 proxy also said the Thoma Bravo deal has the board’s unanimous approval. The shareholder vote is to be held on July 23.

Jayson Noland, an analyst at Robert W. Baird & Co. Inc., noted that SonicWall had been shopped fairly extensively before Thoma Bravo stepped up, so the emergence of another bidder at this late date was rather surprising.

Coming in at such a late stage of the process, “the strategic buyer would have to explain its intentions,” not only regarding the offer price, but also regarding other stakeholders, including employees and customers, Noland said. “It’s not just money, but that does play a leading role.”

And although it seems a difficult task for the strategic bidder and its backers to put together a competing deal in the short time that is available, Noland said, “they could. The board is required to act in the best interest of shareholders.”

Correction: An earlier version of this story that appeared on incorrectly implied that Thoma Bravo had lost three recent auctions.