When it’s right, it’s right.
Dave Caputo, Sandvine’s CEO, had a growing sense that Vector Capital was a company he could do business with, and then he received a phone call “two or three quarters ago,” from one of Vector’s partners. The call confirmed his first instincts.
Sandvine, the Internet traffic management company headquartered in Waterloo, was coming off what Caputo called “a bad quarter.” Vector, a San Francisco-based private equity firm with US$3.4 billion under management, had telephoned just to offer casual encouragement and say, ‘No biggie.’
“One of their partners called and said, ‘Hey, Dave, we just want to remind you we’re not afraid of bad quarters and we understand it, and even though you might be in for a bad time with your investors we completely understand that you’re the type of business where that sometimes happens.’
“Which I thought was a pretty classy move,” said Caputo, speaking with Communitech News just days removed from Sandvine’s announcement last Friday that it had agreed to be acquired by Vector in a deal worth CAD$483 million.
The announcement marks a significant inflection point for Sandvine, which Caputo co-founded in 2001 with a group of PixStream employees, shortly after PixStream was acquired and then shut down by Cisco.
The opportunity to spur the company’s growth, to boost it out of the doldrums, was pivotal to the decision, Caputo said.
“We’ve been stalled out here for the past three years at around US$120 million [in revenue],” said Caputo. “We absolutely see ourselves in a market that’s going to grow and we think we’re going to play a part in that.”
A function of the agreement is that Sandvine, a public company since 2006 that is traded on the TSX, will turn private, giving it the freedom to make decisions that aren’t driven by the quarterly need to show value and boost its share price. Caputo believes that new flexibility, the ability to make decisions with a long-term focus, will translate into new growth.
“Sandvine essentially starts every quarter at zero revenue and we have to do $30 million or more in revenue, U.S. dollars, every quarter,” said Caputo. “So by having an investor with a much more long-term focus, the actual quarter ends aren’t so important any more.
“You can make the right deal, as opposed to trying to squeeze in a deal at the end of the quarter, and just do things that are more in the long-term interests of the company.”
The management team at Sandvine, which has 700 employees worldwide, will remain intact, a detail Caputo said “was a key part of the deal for both Vector and ourselves.
“They really do share the vision of having an independent management team to go out and execute on the company’s strategy.
“The [Sandvine] management team is rolling a significant part of their shareholdings into this new deal, so, financially, we’re a minority, but we’re a significant minority of the financing required to do this. So, the management team will continue on with the long-term best interest of the company in mind.”
And so where from here, once the Vector agreement is finalized?
“Sandvine, at its core, tries to improve the business models for communication service providers delivering Internet access,” said Caputo.
“As we look out in time, we believe that the most important element of how a communication service provider does business is the different way they sell bandwidth.
“The more trust they can develop in delivering security, a secure pipe into the home, [it gives them] the business and intelligence and analytics of what’s happening on their network.
“And so it’s really in those key areas, we think a longer-term focus can help us have a more successful business.”
The deal includes what Caputo termed a “go shop process,” a 42-day window that allows other potential buyers to make a competing offer. If any competing bids materialize, Vector has the opportunity to match.
“While it’s not unheard of,” said Caputo, “it’s probably only happened [a few] times in Canadian history. This gives the board the protection they need to see that they’ve got the highest price available for the company.”
That Vector was willing to agree to the 42-day provision speaks to the confidence they had in the price, and further confirmed for Caputo he had found the right investor.
“Exactly so,” he said.
