October 6, 2022

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Private equity firm Hellman & Friedman buys 7.5% stake in Splunk

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Private equity firm Hellman & Friedman Inc. has acquired a 7.5% stake in Splunk Inc., the Wall Street Journal reported today.

Hellman & Friedman confirmed the investment in a regulatory filing.

The San Francisco-based Splunk provides a widely used data analytics platform of the same name. Companies use the platform to find and troubleshoot technical issues in their information technology environments. Splunk’s software is also useful for other tasks, most notably detecting cybersecurity incidents.

The 7.5% stake that Hellman & Friedman has acquired in Splunk reportedly makes it the company’s largest active shareholder. The stake is estimated to be worth about $ 1.4 billion. Another private equity firm, Silver Lake, invested $ 1 billion in Splunk last June through a purchase of convertible senior notes.

Hellman & Friedman is said to have begun buying Splunk shares in mid-December, shortly after the software maker announced the departure of long-time Chief Executive Officer Doug Merritt. Splunk experienced significant business growth under Merritt’s leadership. The company’s annual revenue increased from about $ 300 million in 2014, the year before the executive took the helm, to $ 2.67 billion in fiscal 2021.

Along the way, Splunk established itself as one of the top providers of software for detecting and troubleshooting IT malfunctions. The company also launched a major effort to refocus from selling software licenses to cloud subscriptions.

Splunk announced earlier this week that it has appointed long-time technology executive Gary Steele to succeed Merritt as CEO. Steele is joining the company from Proofpoint Inc., an email security provider that was acquired by private equity firm Thoma Bravo for $ 12.3 billion last year.

Hellman & Friedman is “supportive of Mr. Steele and plans to work with the company, ”the Journal reported today. Shareholders responded positively to the private equity firm’s investment: Splunk’s share price jumped more than 7% at one point today and is currently up about 5.3%.

Word of Hellman & Friedman’s investment has emerged a few weeks after it was reported that Cisco Systems Inc. had sought to acquire Splunk. Cisco reportedly made a takeover offer of more than $ 20 billion for Splunk at one point. However, the Journal reported last month that the companies “are not currently in active talks” while Bloomberg characterized the talks as having broken down.

Splunk had a market capitalization of about $ 18 billion when reports emerged of Cisco’s $ 20-billion-plus acquisition offer. Today, Splunk is worth approximately $ 20.3 billion, thanks partly to the stock price jump that followed the news of Hellman & Friedman’s investment.

Splunk experienced a few disappointing quarters recently, but its latest quarterly results topped expectations. In the three months through January 31, the company’s revenues climbed 21% year-over-year to $ 901.1 million, well above the $ 774.1 million that analysts had anticipated. The company’s loss and first quarter guidance exceeded expectations as well.

That new Splunk CEO Gary Steele is coming aboard after leading Proofpoint, a major cybersecurity company, suggests cybersecurity will likely remain a core focus of Splunk’s revenue growth efforts. Splunk sells a specialized edition of its data analytics platform optimized for breach detection and remediation. Gartner Inc. estimates that, as of 2020, Spunk was the largest player in the security information and event management market with a 29% market share.

Hellman & Friedman’s purchase of a 7.5% stake in Splunk is one of several high-profile investments that the firm has made in the software market. The firm is a major stakeholder in Genesys Cloud Services Inc., a provider of customer experience management software that received a $ 21 billion valuation last December Hellman & Friedman also backed DoubleClick Inc., an advertising technology company that was acquired by Google LLC in 2008 and became a core component of the search giant’s ad business.

Image: Splunk

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