The Apax Funds to invest in Verint Systems Inc.
The Apax Funds have announced an investment in Verint Systems Inc, a global leader in software solutions to the customer engagement and cyber security markets. The company has two divisions: Customer Engagement, which helps organisations simplify and modernise the way they engage with customers; and Cyber Intelligence, which helps organisations neutralise and prevent cyber threats.
Verint has announced plans to separate the business into two independent, publicly-listed companies: its Customer Engagement business, and its Cyber Intelligence business. The Apax Funds investment would remain solely in the Customer Engagement business post spin-off. The opportunity is to back a category leader in the large and growing workforce engagement market, and to support the business’ acceleration to the cloud while also enabling it to achieve its full potential as a standalone business.
AGA, whose shares are listed on the London Stock Exchange, provides investors with access to the investment expertise of Apax Partners through its investments in a diversified portfolio of private equity funds advised by Apax Partners as well as derived investments in debt and equity.
Verint Announces Plan to Separate into Two Independent Publicly Traded Companies
Also Announces $200 Million Minority Investment by Funds Advised by Apax Partners in Support of Verint’s Separation Plan; Additional $200 Million to Be Invested Post Separation
New $300 Million Share Buyback Program Over Period Through Closing of Separation
MELVILLE, N.Y., December 4, 2019 – Verint® Systems Inc. (NASDAQ: VRNT), today announced that its Board of Directors has unanimously approved proceeding with a plan to separate Verint into two independent companies: one of which will consist of its customer engagement business, and one of which will consist of its cyber intelligence business. Verint expects to complete the separation shortly after the end of Verint’s next fiscal year ending January 31, 2021.
“With our customer engagement business approaching $1 billion in annual revenue and our cyber intelligence business approaching $500 million in annual revenue, we believe the two independent, publicly traded companies will both benefit from the separation and be well positioned to pursue their own strategies, drive opportunities to accelerate growth and extend their market leadership. The separation will make it easier for investors to evaluate and make independent investment decisions in each business. In preparation for the separation, we have taken steps over the last several years to strengthen the two businesses operationally and believe we are now well positioned to execute our separation plan,” said Dan Bodner, Verint CEO.
Verint intends to implement the separation through a pro-rata distribution of common stock of a new entity that will hold the cyber intelligence business and expects the distribution to qualify as tax free to Verint shareholders for U.S. federal income tax purposes. The completion of the transaction is subject to certain customary conditions, including final approval of the Verint Board of Directors, receipt of tax opinions from counsel as well as rulings from the Internal Revenue Service and the Israeli Tax Authority with respect to tax treatment to Verint and its shareholders, and effectiveness of a registration statement to be filed with the U.S. Securities and Exchange Commission. The separation is not expected to require a shareholder vote. The separation structure is subject to change based upon various tax and regulatory factors and there can be no assurance that any separation transaction will ultimately occur or, if one does occur, of its terms or timing.
Investment by Funds Advised by Apax Partners
Funds advised by Apax Partners (the “Apax Funds”), a global private equity advisory firm, have agreed to invest up to $400 million in Verint, subject to customary closing conditions including the receipt of required regulatory clearances. The Apax Funds have significant experience in the software sector, including through previous investments in TriZetto, Plex Systems, RealPage, Sophos, Epicor and Exact Software. The investment will be made in the form of convertible preferred stock in two tranches of $200 million each. The first tranche is targeted to close in our first quarter ending April 30, 2020. The second tranche, conditioned on and expected to close shortly following the separation (expected shortly after the end of Verint’s next fiscal year ending January 31, 2021), will be made into Verint, the entity holding the customer engagement business.
Mr. Bodner added, “Apax Partners has a proven track record of creating value by partnering with leading software companies around the world, including significant experience in both carve-outs and cloud transitions. The investment represents a strong vote of confidence in our strategy and future growth opportunities.”
In connection with the closing of the first tranche of the investment, Jason Wright, Partner at Apax Partners, will be appointed to Verint’s Board of Directors. At the closing of the second tranche, the company will add a mutually agreed upon independent Director to Verint’s Board.
Mr. Wright said, “We are excited to partner with Verint and help the Company complete the separation, enabling both businesses to achieve their full potential. Verint’s Customer Engagement business is a market leader and we look forward to working with management to execute its cloud strategy and extend its market leadership.”
Under the investment agreement, the Apax Funds will initially purchase $200 million of Series A convertible preferred stock with an initial conversion price of $53.50, representing a conversion premium of 17% percent over the volume-weighted average price of the Company’s common stock over the 45 day period prior to the signing date. The Series A convertible preferred stock will not participate in the spin-off of the cyber intelligence business but will have its conversion price adjusted and will remain invested in the entity holding the customer engagement business. Shortly following the separation, the Apax Funds will purchase, subject to certain conditions, up to $200 million of Series B convertible preferred stock with an initial conversion price based on the volume-weighted average price of the Company’s common stock over a 20 day period following the separation, subject to a collar on the minimum and maximum enterprise value of the company post separation. Both the Series A and Series B will have an initial dividend rate of 5.2% dropping to 4.0% over time. Assuming both the Series A and the Series B are issued on the expected timeframe and remain outstanding for 8.5 years from their respective dates of issuance, the average dividend rate on the combined investment will be approximately 4.5%. Following the closing of the Series A investment, the Apax Funds’ ownership in Verint on an as-converted basis will be approximately 5%. Assuming completion of the Series B investment and the separation, the Apax Funds’ ownership on an as-converted basis will be between 11.5% and 15.0%.
Additional information may be found in the Form 8-K that will be filed today with the U.S. Securities and Exchange Commission.
Share Buyback Program
Verint today also announced that our Board of Directors has authorized a new share repurchase program whereby we may repurchase up to $300 million of common stock over the period ending on February 1, 2021 (on or shortly before the planned business separation). Repurchases are expected to be financed with the proceeds of the first tranche of the Apax Funds investment and available cash, including possible borrowings under our revolving credit facility. We may utilize a number of different methods to effect the repurchases, including but not limited to, open market purchases and accelerated share repurchases, and some of the repurchases may be made through Rule 10b5-1 plans. The specific timing, price, and size of purchases will depend on prevailing stock prices, general market and economic conditions, and other considerations, including the amount of cash available in the U.S. and other potential uses of cash. The program may be extended, suspended or discontinued at any time without prior notice and does not obligate us to acquire any particular amount of common stock.
Customer Engagement and Cyber Intelligence Leadership
We believe that both our businesses are leaders in their respective markets and the separation will enable them to achieve even better performance over the long term, as the two companies will have:
- separate boards with further differentiated skillsets to support tailored strategic plans;
- specific incentive programs more closely aligned with standalone business performance;
- capital structures tailored to the unique characteristics of each business; and
- enhanced appeal to a broader set of investors suited to the strategic and financial characteristics of each company.
Customer Engagement Business Highlights
Approaching $1 billion of annual revenue Cloud transition opportunity
Cyber Intelligence Business Highlights
Approaching $500 million of annual revenue Software model transition opportunity
Mr. Bodner concluded, “Today’s announcements are consistent with our commitment to creating value for our shareholders. We have built two strong, but increasingly distinct businesses, and we believe that separating these two businesses at this stage of their evolution will allow each to unlock its full potential. Our customer engagement business will continue to focus on helping organizations elevate customer experience while reducing costs and our cyber intelligence business will continue to focus on helping make the world a safer place.”
Jones Day is serving as legal advisor to Verint and Jefferies LLC is acting as financial advisor to Verint. Kirkland & Ellis LLP is serving as legal advisor to Apax Partners.
Sarah Page IR Manager – AGA Telephone: +44 (0)20 7666 6573
Head of Communications
Telephone:+44 (0) 20 7872 6371
About Apax Global Alpha Limited
AGA is a Guernsey registered closed-ended collective investment scheme incorporated as a non-cellular company that listed on the London Stock Exchange on 15 June 2015. It is regulated by the Guernsey Financial Services Commission.
AGA’s objective is to provide shareholders with capital appreciation from its investment portfolio and regular dividends. The Company is targeting an annualised Total Return, across economic cycles, of 12-15% (net of fees and expenses) including a dividend yield of 5% of Net Asset Value.
The investment policy of the Company is to make Private Equity investments in Apax Funds, and Derived Investments which are investments in equities and debt derived from the insights gained via Apax Partners’ Private Equity activities. The Company’s portfolio is expected to be allocated in approximately equal proportions between Private Equity and Derived Investments, although the investment mix will fluctuate over time due to market conditions, investment opportunities, cash flow requirements, the dividend policy and other factors. Further information regarding the Company and its publications are available on the Company’s website at www.apaxglobalalpha.com.
About Apax Partners LLP
Apax Partners is a leading global private equity advisory firm. Over its more than 40-year history, Apax Partners has raised and advised funds with aggregate commitments of c.€40 billion. Funds advised by Apax Partners invest in companies across four global sectors of Tech & Telco, Services, Healthcare and Consumer. These funds provide long_term equity financing to build and strengthen world_class companies. For further information about Apax Partners, please visit www.apax.com.
Apax Partners is authorised and regulated by the Financial Conduct Authority in the UK.