SolarWinds: Inside the $4.5B Buyout

How did Silver Lake and Thoma Bravo LLC acquire SolarWinds and the N-able MSP software business for $4.5 billion? Here's the untold story -- spanning 66 days of intense negotiations, a lineup of at least nine potential suitors, multiple bids from at least five companies, and the very moment that Silver Lake and Thoma Bravo finally combined forces on the blockbuster deal. For MSPs and channel partners, specific details of the SolarWinds buyout -- how and why it unfolded -- are particularly important. The day-by-day timeline below shows that SolarWinds was negotiating from a position of strength with multiple bidders. The details, culled from an SEC filing, also reinforce that bidders were pursuing the entire company -- including SolarWinds' N-able division, which works closely with MSPs.

Got Time to Meet?

The buyout story, as documented by an SEC filing reviewed by ChannelE2E, starts innocently enough. Like most IT companies, SolarWinds meets regularly with investors and strategic partners to discuss the IT market, business scenarios and more. One of those meetings occurred on Aug. 6, 2015 -- when SolarWinds CEO Kevin Thompson met with a representative of Thoma Bravo -- at the request of Thoma Bravo. It seemed like a typical check-in discussion. A potential buyout was not discussed at that meeting.

Day 1: The Dance Suddenly Begins

It turns out, Thoma Bravo's "check in" with Thompson was more than a typical house call. Fast forward to Monday, August 17, 2015. That's when Thoma Bravo representatives dialed Thompson, stating that the private equity firm wanted to buy SolarWinds. On the same day, Thoma Bravo delivered an unsolicited letter of intent to acquire SolarWinds for $52 per share in cash -- a 23.9% premium to the closing price of SolarWinds' stock as of August 14, 2015. It was a straightforward offer. But this wouldn't be a straightforward negotiation. The Thoma Bravo bid triggered a journey of discovery for SolarWinds' board and its financial and legal advisors.

Jason Ream

Day 3 (Wednesday, August 19, 2015): SolarWinds CFO Jason Ream spoke with Thoma Bravo -- seeking more information to help SolarWinds' board consider the offer. Day 9 (Tuesday, August 25, 2015): SolarWinds' board met on a teleconference to discuss Thoma Bravo's proposal. The board, management and legal advisors discussed a range of items -- valuation, operating performance, challenges and opportunities, Thoma Bravo's ability to complete the transaction and much more. The key action item: SolarWinds decided to retain a financial advisor -- JP Morgan -- to evaluate the takeover offer and various options. SolarWinds told Thoma Bravo to stay tuned for an update following an early September board meeting. Day 23 (Tuesday, September 8, 2015):  SolarWinds board huddled again, this time at a regularly scheduled meeting. JP Morgan was officially recruited to become SolarWinds' financial advisor. In addition to discussing the Thoma Bravo offer, the board discussed different buyout scenarios and potential suitors for the company.

More Buyers, More Scenarios?

Day 24 (Wednesday, September 9, 2015): The two-day SolarWinds board meeting continues. Here again, the board and JP Morgan discussed the Thoma Bravo offer and several other potential buyout scenarios. The board began to pinpoint hypothetical suitors beyond Thoma Bravo -- including Silver Lake Partners and two other firms that SolarWinds has not disclosed by name (known only as "Sponsor C" and "Sponsor D"). Software Suitors?: SolarWinds' board also considered potential "strategic acquirers" -- which likely describes software companies that could swallow the IT management company. The challenge: At least two of those "strategic" players apparently were private equity owned, so SolarWinds opted instead to first pursue potential private equity suitors. The Cloud and Revenues: In a key SolarWinds presentation to the board, SolarWinds executives described three possible financial scenarios -- a low case, a mid case and a high case -- if the company remained independent. The board and SolarWinds management also discussed the company's product and technology road-map, the transition from on-premise to cloud technologies and the impact on bookings, license, maintenance and subscription revenue, revenue retention and spending and expenses. Based on numerous variables, the board believed the mid case for revenues was the most likely outcome if the company remained independent.

Reaching Out to Four Potential Buyers

After the September 8-9 board meetings, the board instructed JP Morgan to contact four potential buyers -- Thoma Bravo, Silver Lake Partners, Sponsor C and Sponsor D -- to gauge their interest in a potential buyout. The Weeks of September 14, 2015 and September 21, 2015: Now the SolarWinds buyout dance really accelerated -- with multiple partners. During private, non-disclosure discussions, SolarWinds  hosted management presentations with each of the four potential suitors. The four potential buyers, if interested, were required to submit initial bids by September 25, 2015. Day 40 (Friday, September 25, 2015) -- Four Bids Arrive: Each of the four potential suitors submitted bids. They included:

• Silver Lake Partners at $57 to $59 per share.
• Thoma Bravo at $54 per share.
• Sponsor C at $54 per share.
• Sponsor D at $52 per share.

Weekend Board Meeting: More Bidders, Potential Alliances

Day 41 (Saturday, September 26, 2015): During a SolarWinds board meeting, JP Morgan described additional buyout scenarios that were emerging:

• Two additional bidders (Sponsor E and Sponsor F) wanted to pursue a SolarWinds buyout -- potentially bringing a total of six suitors to the bidding table.
• Silver Lake wanted permission to work with Sponsor C (still unnamed) on a joint bid.

At the board's direction, JP Morgan next took the following steps:

• Contact the existing financial sponsors (Silver Lake, Thoma Bravo, Sponsor C and Sponsor D) to see if they could improve their offers.
• Tell Silver Lake and Sponsor C that they were permitted to speak with one another only if Sponsor C increased its offer (currently $54 per share) to match the offer of Silver Lake ($57 to $59 per share).
• Do not invite the two other potential suitors (Sponsors E and F) to the negotiating party just yet.

Later that same day, Sponsor D submitted a revised written indication of interest offering $57.50 per share. Day 43 (Monday, September 28, 2015): New bids and updated statements from the private equity firms arrived.

• Silver Lake verbally reaffirmed its offer of $57 to $59 per share.
• Thoma Bravo improved its offer to $57 per share, up from the previous $54 per share.
• Sponsor C submitted a revised written indication of interest offering $57 per share, up from the previous $54 per share.
• Sponsor D was still in the game at $57.50 per share.

Expanding to Nine Potential Bidders?

Later that same day (Monday, Sept. 28), the board held a special meeting -- once again weighing current financial conditions, forecasts and other pros and cons related to remaining independent vs. selling the company. Based on all the variables, the board instructed JP Morgan to pursue final buyout bids by October 26, 2015. Also on Sept. 28, the Board instructed JP Morgan to invite the other two suitors (Sponsor E and Sponsor F) into the sale process, and to pursue three additional potential strategic buyers in the process ("Strategic C", "Strategic D" and "Strategic E"). At that point on Sept. 28, there were nine potential suitors for the company, four of which had already made a bid for the company, according to ChannelE2E's interpretation of SEC filings:

1. Silver Lake Partners, bidding $57 to $59 per share
2. Thoma Bravo, offering $57 per share
3. Sponsor C, offering $57 per share
4. Sponsor D, offering $57.50 per share
5. Sponsor E, which expressed unsolicited interest in the company but had yet to bid
6. Sponsor F, which also expressed unsolicited interest in the company but had yet to bid
7. Strategic C, likely a software company that SolarWinds wanted to contact
8. Strategic D, also likely a software company that SolarWinds wanted to contact
9. Strategic E, also likely a software company that SolarWinds wanted to contact

Day 44 (Tuesday, September 29): Sponsor C submitted a revised indication of interest which matched Silver Lake's offer of $57 to $59 per share and was permitted to speak with Silver Lake regarding forming the Silver Lake / Sponsor C Group. Between September 29, 2015 and October 16, 2015, SolarWinds conducted conference calls and in-person management presentations, and shared due diligence information with all of the active bidders and their potential financing partners.

Two More Potential Suitors Emerge?

Day 45 (Wednesday, September 30, 2015): Two additional financial sponsors not previously contacted by SolarWinds (call them "Sponsor G" and "Sponsor H") contacted JP Morgan to inquire about the sale process. Sponsor G later elected not to become involved in the sale process. Sponsor H requested to be considered as a potential partner if an existing bidder indicated a desire to form an equity consortium. Sponsor E requested to be considered as a potential partner if an existing bidder indicated a desire to form an equity consortium. Day 46 (Thursday, October 1, 2015): SolarWinds conducted an in-person management presentation with Sponsor F. Day 47 (Friday, October 2, 2015): Strategic C notified J.P. Morgan that it would not be interested in pursuing a SolarWinds buyout.

A Fifth Official Bidder Emerges

Day 48 (Saturday, October 3, 2015): At this point, SolarWinds still had four bids on the table:

1. Silver Lake Partners, bidding $57 to $59 per share
2. Thoma Bravo, offering $57 per share
3. Sponsor C, which had upped its offer to $57 to $59 per share
4. Sponsor D, offering $57.50 per share

Then came the fifth bidder: Sponsor F submitted a written indication of interest for an all-cash acquisition of the company for $57 per share. That same day, Strategic E -- likely a software company, ChannelE2E believes -- indicated a desire to engage in an exploratory buyout conversation with SolarWinds.

Continue to Page 2 for the Final Negotiations

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Day 49 (Sunday, October 4, 2015): SolarWinds delivered a draft merger agreement to each of Thoma Bravo, the Silver Lake / Sponsor C Group, Sponsor D and Sponsor F. Day 50 (Sunday, October 5, 2015): Strategic D notified JP Morgan that it wasn't interested in a SolarWinds buyout. On the same day, an additional financial sponsor not previously contacted by SolarWinds ("Sponsor I") contacted JP Morgan to inquire about the sale process. Sponsor I later requested to be considered as a potential partner if an existing bidder indicated a desire to form an equity consortium. Day 53 (Thursday, October 8, 2015): SolarWinds hosted a conference call with  Strategic E. Also, Sponsor D and Sponsor F were permitted to partner on a bid.

Media Comes Calling

Day 54 (Friday, October 9, 2015): Reuters contacted SolarWinds, inquiring about the company's alleged discussions with private equity firms. SolarWinds declined comment, Reuters published a report suggesting SolarWinds was for sale, and then SolarWinds issued a statement say the board was  undertaking a review of strategic alternatives and had engaged JP Morgan as financial advisor and DLA Piper as legal advisor. Day 56 (Sunday, October 11, 2015): Sponsor E drops out of the discussions. Day 59 (Wednesday, October 14): The board met and discussed the Reuters report and other matters related to the potential sale.

An Offer -- With A Catch

Day 61 (Friday, October 16, 2015):  Thoma Bravo submitted an offer package, complete with transaction documents and executed financing commitment letters that provided for a fully-financed offer of $56 per share for SolarWinds. The catch: The deal would essentially expire on October 19. On the same evening, Silver Lake informed JP Morgan that its potential partner on the deal -- Sponsor C -- was no longer interested in the buyout process. Silver Lake indicated that it was considering how it might proceed with an alternative partner but would withdraw if unable to do so. Day 62 (Saturday, October 17, 2015): Now comes a key moment in the negotiations. Following directions from SolarWinds' board, JP Morgan suggested to Thoma Bravo that it improve its proposal and -- and potentially partner with Silver Lake to do so. On the same day, the Sponsor D/Sponsor F group reiterated its interest in a potential buyout. Day 63 (Sunday, October 18, 2015): The clock is ticking. Thoma Bravo reiterated its October 19, 2015, deal deadline. JP Morgan requested Thoma Bravo extend the offer deadline until the evening of October 19, 2015. Thoma Bravo agreed to the extension. Day 64 (Monday, October 19, 2015): In the early morning, the Sponsor D / Sponsor F Group delivered a letter to JP Morgan expressing its continued enthusiasm to enter into a transaction and confirming that it was complete with its diligence.

Thoma Bravo, Silver Lake: No Go?

Day 64, Continued: Now for a huge twist. Thoma Bravo informed JP Morgan that it would not pursue a buyout partnership with Silver Lake. For Silver Lake to remain at the bidding table, it needed more time to find another potential equity partner. Later that day and prior to a board meeting, the Sponsor D / Sponsor F Group and Silver Lake submitted revised written offers.

• The Sponsor D / Sponsor F Group letter offered $57.75 per share.
• The Silver Lake letter offered $56 to $57 per share, lower than the $57 to $59 per share it had previously offered. The new Silver Lake offer was also premised on identifying a new equity partner.

Another Round of Bids

Day 64 (Monday night, October 19, 2015): The board decided not to accept Thoma Bravo's offer -- at least not as currently termed. SolarWinds instead pursued more negotiations with each of the bidders. At this point, Strategic E pulled out of the negotiations. Day 65 (Tuesday, October 20, 2015): New offers arrived. They included:

• Thoma Bravo increased its offer to $57.75 per share, reiterated the need to finalize negotiations due to the uncertainty regarding credit financing and also eliminated from its offer the Modified Go-Shop.
• Sponsor D / Sponsor F Group increased its offer to $58.75 per share and reiterated its readiness to sign definitive documentation.
• Silver Lake did not revise its original offer range of $56 to $57 per share.

Thoma Bravo, Silver Lake Finally Unite

Day 65 (Tuesday, October 2o, 2015): A few hours thereafter, a potential breakthrough arrived. Thoma Bravo notified JP Morgan that it intended to explore additional equity partnerships -- including conversations with Silver Lake and Sponsor I. Then came another new round of bids:

• Thoma Bravo later informed JP. Morgan that it was finalizing discussions with Silver Lake and increased its offer to $59 per share.
• Sponsor D / Sponsor F Group verbally increased its offer to $59.55 per share and delivered credit financing commitment letters. The

That evening, SolarWinds board met again. and reviewed the new offers from the bidders. The board instructed JP Morgan and DLA Piper to pursue best and "best and final offers" from the bidders.

Best and Final Offers

Day 66 (Wednesday, Oct. 21): Final bids arrived.

• Sponsor D / Sponsor F Group submitted a revised offer of $60.06 per share
• Silver Lake and Thoma Bravo submitted a revised offer of $60.10 per share.

The board reconvened its meeting at 1:00 a.m. CDT on October 21, 2015, and unanimously approved the deal with Silver Lake and Thoma Bravo. On the morning of October 21, 2015, the parties executed the Merger Agreement and other definitive documentation. The Company issued a press release announcing the entry into the Merger Agreement.

M&A: Truly A Negotiation

As the timeline above shows, SolarWinds' board and advisors spent an exhaustive 66 days navigating potential buyers, exploring pros and cons of potential deals, and then negotiating buyout terms. Contrary to some of my earlier thoughts in  October, SolarWinds hadn't put itself up for sale. Instead, private equity came calling. In response, Thompson and the board had the fiduciary responsibility to fully unlock SolarWinds' financial value. Potential negotiations with at least nine companies were explored. At least five companies ultimately bid. And multiple rounds of bidding finally culminated in a $4.5 billion buyout. Not a bad outcome based on 66 days of negotiations.