Bain, Warburg, Silver Lake Cash Out In Siemens Buy

Target: UGS Corp.

Price: $3.5 billion

Multiple: 14.5x EBITDA

Sponsor: Siemens AG

Sellers: Warburg Pincus; Silver Lake Partners; Bain Capital

Legal Advisor: Seller: Ropes & Gray

Financial Advisor: Seller: Deutsche Bank

German conglomerate Siemens AG has handed a trio of buyout shops a big payout by agreeing to buy Texas software company UGS Corp. for $3.5 billion.

The deal, which includes $1.4 billion in assumed debt, would close the book on a 2004 carve-out that at the time made a splash as the largest technology LBO. Announced Jan. 25, the exit for Bain Capital, Warburg Pincus and Silver Lake Partners is scheduled to close at the end of first quarter 2007, pending antitrust approval. In all, the deal represents a 2.5x multiple on equity invested by the three firms, generating returns “in the mid-30s,” according to a source familiar with the deal.

The three firms bought UGS in 2004 for roughly $2.05 billion. They put up $350 million each in equity and borrowed about $1 billion in senior debt and junk bonds to buy the manufacturing software company, which had been part of Electronic Data Systems. Bain, Silver Lake and Warburg Pincus won a heated auction that drew top LBO players such as the Blackstone Group, Texas Pacific Group, Kohlberg Kravis Roberts & Co. and Welsh, Carson, Anderson & Stowe.

Analysts generally applauded Siemens’s move as a wise strategic acquisition. But they are also nearly unanimous in their belief that the German corporation paid a rich premium. Bain, Warburg Pincus and Silver Lake paid a little more than 10x EBITDA for UGS. Nearly three years later, Siemens paid 14.5x EBIDTA for the company, based on the company’s 2005 financials. Based on 2006 results, the EBITDA multiple is probably lower, according to a source close to the deal.

At the end of 2005, the three buyout shops held a combined equity stake of $922 million in the company, according to a regulatory filing. The Siemens offer includes $2.1 billion in cash for the equity interest. Throw in a special $300 million dividend the buyout shops received as part of the deal, and Bain, Silver Lake and Warburg Pincus earned about $2.4 billion.

UGS’s product-lifecycle software is used by a host of automotive manufacturers, including General Motors. In June, UGS CEO Anthony Affuso said the firm was preparing for a public offering that could raise $3 billion to $4.6 billion, according to Bloomberg. The IPO never materialized because UGS wasn’t turning a profit, an industry analyst told the news agency.

The technology buyout market promises to heat up this year. At least eight firms expect to raise more than $15 billion in 2007 for technology plays. Top funds coming to market this year include a minimum $1 billion fund from Platinum Equity and a $1 billion fund from Symphony Technology Group.—J.H.