Sandvine to be acquired by Vector Capital in $483M deal

Waterloo-based Sandvine, whose technology is used to manage Internet traffic, has entered an agreement to be acquired by Vector Capital in a deal worth CAD$483 million.

The agreement, announced by Sandvine on Friday, will see Vector take the publicly traded company private and will enable it to grow more aggressively, officials said in a news release.

“There are a number of long-term growth opportunities that Vector, as a specialist technology investor, is enthusiastic about and can help us pursue more aggressively, Sandvine CEO Dave Caputo said. “We see this as an excellent opportunity to better serve our 300-plus customers, to enhance our strategic position over the longer term, and to do it the Sandvine way.”

The full text of Friday's announcement is here:

Sandvine Corporation To Be Acquired By Vector Capital
WATERLOO, ON – May 26, 2017 – Sandvine Corporation (“Sandvine” or the “Company”) (TSX: SVC), announced today that it has entered into an arrangement agreement (the “Arrangement Agreement”) with an affiliate of Vector Capital (“Vector Capital”). Vector Capital is a leading global private equity firm specializing in transformational investments in established technology businesses. Under the Arrangement Agreement, and with support from Sandvine’s Board of Directors, an affiliate of Vector Capital, Scalar AcquireCo Corp. (“Scalar AcquireCo.”), will acquire all of the issued and outstanding shares of Sandvine, other than certain shares held by members of management, for CAD $3.80 in cash per share. The price per share implies an aggregate fully?diluted equity value for Sandvine of approximately CAD $483 million.

“The Sandvine Team has built the clear leader in network policy control and I am extremely proud of what we have accomplished to date,” said Dave Caputo, Sandvine’s President and Chief Executive Officer. “There are a number of long-term growth opportunities that Vector, as a specialist technology investor, is enthusiastic about and can help us pursue more aggressively. We see this as an excellent opportunity to better serve our 300-plus customers, to enhance our strategic position over the longer term, and to do it The Sandvine Way.”

“We are excited to partner with Dave and this deeply talented management team to take Sandvine to the next level,” said Rob Amen, a Managing Director at Vector Capital. “We are confident that, together with the founding team, Vector can enhance Sandvine’s proud track record of growth, innovation and independent operations. Vector was specifically formed to collaborate with market leading technology companies to accelerate their growth and redefine their markets in new and disruptive ways. We believe that Sandvine’s emerging product opportunities and transition to fully virtualized solutions represent an opportunity for such a disruption. Our partnership with this deeply talented Team couldn’t be stronger.”

Transaction Highlights

The cash purchase price represents a 20% premium to Sandvine’s closing share price of CAD $3.16 on May 25, 2017, a 32% premium to the cash-adjusted1 closing price on May 25, 2017, and a 30% premium to the cash-adjusted volume weighted average price of Sandvine’s shares over the last twenty trading days.
To reinforce Sandvine’s senior management team’s full commitment to the Company’s long-term success, Sandvine’s CEO, Dave Caputo, together with members of Sandvine’s senior management team (Don Bowman, Tom Donnelly, Brad Siim and Scott Hamilton (collectively, the “Rolling Shareholders”)) have agreed to exchange an aggregate of 5.1 million shares (representing the majority of their common share holdings) for shares of an affiliate of Scalar Acquireco.
Sandvine’s Board formed a special committee (the “Special Committee”) of independent directors, consisting of Kenneth Taylor, Osama Arafat and Roger Maggs, to negotiate and review the transaction. The Special Committee and the Board (with interested directors abstaining) have unanimously recommended that shareholders vote in favour of the transaction.
Sandvine has a 42-day go-shop period to actively solicit superior proposals. Following the go-shop period, Sandvine will be subject to a non-solicitation covenant, with customary fiduciary out provisions.
Scalar AcquireCo has been granted a five-business-day right to match competing proposals.
Sandvine is permitted to terminate the Arrangement Agreement in certain circumstances, including to allow the Board of Directors (the “Board”) to accept a superior proposal subject to certain conditions, including Scalar AcquireCo’s right to match. The Arrangement Agreement provides for a termination fee of CAD $8.4 million with respect to such a termination during the go-shop period and CAD $16.9 million in certain other circumstances.
Following closing, Sandvine common shares will be de-listed from the TSX and no longer traded publicly.
“Sandvine is at a major transformation point in its evolution,” said David Fishman, Managing Director and Head of Investment Team at Vector Capital. “Vector’s financial and strategic support will enable the company to continue its leadership in network policy control. We believe that our long-term approach will enable Sandvine to continue to expand its lead in its traditional areas of strength and better execute on a number of emerging opportunities, such as its next-generation virtualized offerings and cyber security.”

“The Special Committee and the entire Board of Directors of Sandvine is pleased to have reached this agreement with Vector. We firmly believe that it provides significant value for shareholders today and creates tremendous opportunities for Sandvine, our customers and our Team in the future,” said Ken Taylor, Sandvine Director and Chairman of the Special Committee.

Transaction Details

The transaction will be implemented by way of a plan of arrangement (the “Arrangement”) under the Business Corporations Act (Ontario). The implementation of the Arrangement will be subject to shareholder approval at a special meeting of shareholders of Sandvine (the “Special Meeting”), which is expected to be held shortly after the conclusion of the go-shop period. The Arrangement will constitute a “business combination” for the purposes of Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions. The Arrangement will therefore require the approval of the holders of a majority of the shares cast at the Special Meeting excluding those shares held by the Rolling Shareholders, in addition to approval by 66 2/3% of all votes cast at the Special Meeting. The transaction is also subject to the approval of the Ontario Superior Court of Justice, in addition to certain regulatory approvals and closing conditions customary to a transaction of this nature.

In making their respective determinations to recommend in favour of the Arrangement, the Board and the Special Committee considered, among other factors, a fairness opinion from Canaccord Genuity Corp. (“Canaccord Genuity”), to the effect that the consideration payable under the Arrangement Agreement is fair, from a financial point of view, to the shareholders (other than the Rolling Shareholders). The Special Committee’s recommendation was also based, in part, on the availability of a go-shop period in which the Company may actively solicit superior proposals, subject to a customary “right to match” in favour of Scalar AcquireCo. In addition, the Arrangement Agreement provides for the payment to the Company by Scalar AcquireCo of a reverse termination fee of CAD$33.8 million in certain circumstances.

In connection with the transaction, the Rolling Shareholders, who together hold in aggregate approximately 7.2 million of the fully?diluted shares (representing approximately 5.7% of the fully?diluted shares of the Company), have entered into voting support agreements with Scalar AcquireCo pursuant to which they have agreed to vote all of their shares in favour of the Arrangement.

The transaction will be financed in part through a combination of committed debt and equity financing, subject to the terms of those commitments. The Company has also received from Vector Capital a limited guarantee of certain obligations of Scalar AcquireCo.

Advisors

The Board retained Canaccord Genuity as its exclusive financial advisor. Dentons Canada LLP is acting as Canadian legal counsel and Dentons US LLP is acting as US legal counsel to Scalar, the Board and the Special Committee. Stikeman Elliott LLP is acting as Canadian legal counsel to Vector Capital, and Paul Hastings LLP is acting as US legal counsel to Vector Capital. Blake, Cassels & Graydon LLP is acting as legal counsel to the Rolling Shareholders.

Additional Information About the Proposed Transaction
Copies of Canaccord Genuity’s fairness opinion, and a description of the various factors considered by the Board of Directors of the Company in its determination to approve the transaction, as well as other relevant background information, will be included in the management information circular to be sent to the Company’s shareholders in advance of the Special Meeting. The management information circular, the Arrangement Agreement, the plan of arrangement and certain related documents will be filed with the Canadian securities regulators and will be available on SEDAR at www.sedar.com.

The Company also advises that its normal course issuer bid and associated automatic share purchase plan has concluded.

About Vector Capital

Vector Capital is a leading global private equity firm specializing in transformational investments in established technology businesses. With $3.4 billion of capital under management, Vector identifies and pursues these investments in both the private and public markets. Vector actively partners with management teams to devise and execute new financial and business strategies that materially improve the competitive standing of these businesses and enhance their value for employees, customers, and shareholders. Among Vector's notable investments are 20-20 Technologies, Allegro Development, Cambium Networks, ChyronHego, CollabNet, Corel, Emarsys, Halogen Software, LANDesk Software, RAE Systems, Saba Software, SafeNet, Technicolor, Teletrac, and WatchGuard Technologies. For more information, visit www.vectorcapital.com.

About Sandvine Corporation

Sandvine’s network policy control solutions add intelligence to fixed, mobile and converged communications service provider networks, to increase revenue, reduce network costs and improve subscriber quality of experience. Our networking solutions perform end-to-end policy control functions, including traffic classification, policy decision and enforcement. Deployed as virtualized network functions or on Sandvine’s purpose built hardware, the products provide actionable business insight, and the ability to deploy new consumer and business subscriber services, optimize and secure network traffic, and engage with subscribers.

Sandvine’s network policy control solutions are deployed in more than 300 networks in over 100 countries, serving hundreds of millions of data subscribers worldwide. www.sandvine.com.