Francisco Partners Earns Private Equity Firm of the Year for a Stellar 2016 that Included Buying Dell’s Software Group

from The Middle Market
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Technology specialist Francisco Partners enjoyed a spectacular 2016, with many highlights, including: the purchase of Sintec Media, which makes broadcast management software; the sale of Aesynt, which develops medication management software, to Omnicell Inc. (NASDAQ: OMCL) for $275 million; and the initial public offering of Ichor Holdings Ltd. (Nasdaq: ICHR). But the most compelling deal that the San Francisco firm closed in 2016 was the $2.4 billion purchase of Dell Inc.’s software group and the subsequent carve-outs of Quest Software and SonicWall.

From 2010 to 2015, Dell had spent about $4.2 billion to beef up its software group with network security and identity management products through acquisitions, including buying SonicWall in 2010 and Quest in 2012. But in 2016, the top priority for the company owned by founder Michael Dell and private equity firm Silver Lake Partners was to buy EMC Corp. The deal for EMC closed in September with a purchase price of $67 billion, making it the largest technology deal in history. To seal the deal, Dell had to raise funds, and selling its software business was part of the strategy.

For Francisco Partners, news of the sale was welcome. The firm had tried to buy both SonicWall and Quest in the past, only to lose out to higher bidders. Knowledge of the assets was a significant advantage for the PE firm.

“We could move quickly, because we had known these assets,” said Dipanjan “DJ” Deb, founding partner and CEO of Francisco Partners, in an interview. Deb, who knows the Silver Lake partners well and has met Michael Dell, led the negotiations on the deal, making the case for his firm: “We may not be the high bidder, but we’ll provide speed and certainty to close, because we know both sectors and both businesses well.”

Since buying Dell’s software group in partnership with Elliott Management Corp., Francisco Partners has done a “massive reorientation,” explained Deb. “In every business, there are underperforming parts. Division carve-outs is 35 to 40 percent of what we do.”

Dell’s software group included six software businesses: Windows management, information management, identity management (the crown jewel, according to Deb), data protection, endpoint management along with performance monitoring.

The first step was to divide the software group into two companies, based in part along distribution lines. The new SonicWall sells products through distributors; and the new Quest Software sells to customers directly. Francisco Partners hired new CEOs for both companies.

Reorganization was involved. For example, the $200 million identity management business was part of the original SonicWall, but, since the identity management products are sold directly to customers, the business has been moved to Quest. The fast-growing business may one day be carved out into its own company, according to Deb.

The pace of dealmaking activity has continued into 2017 for Francisco Partners. Among other deals, the firm recently sold portfolio company CoverMyMeds LLC, which aims to accelerate the approval process for medical prescriptions, to McKesson Corp. (NYSE:MCK) for up to $1.4 billion.