Sale of the Veritas Business Could Boost Symantec’s Valuation by 10%

SYMC: Symantec Corp logo
SYMC
Symantec Corp

Global security software giant Symantec Corp. (NYSE:SYMC) is reportedly closing in on a deal to sell its information management business, Veritas, to private equity firm Carlyle Group. The sale could bring in $7-$8 billion for Symantec and close the book on a sluggish, unprofitable business that the company acquired in 2005. [1] We estimate that if the transaction goes through, it could result in a 10% upside to our price estimate for the company. The upside is expected to be a result of the higher profitability of the company, since Symantec would no longer be dragged down by the low-margin information management business.

It is worth noting that Symantec’s share price has remained nearly stable since it announced its plan to split the Veritas unit into a separate company last October, indicating investors’ indifference to the split. However, in the short period since the rumors of a potential sale surfaced last week, Symantec’s share price has increased marginally by 3%.

Our price estimate of $26 for Symantec Corp. is 10% higher than its current market price.

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See our complete analysis for Symantec Corp. here

A Long Overdue Move

Symantec has been shopping for a buyer for its information management business since April this year. (Read: Symantec Contemplating Sale of Its Information Management Business) That Symantec has been trying to sell the Veritas unit is not surprising, since the information management division has been struggling heavily in recent years. Symantec’s market share in the global information management software market declined from 17% in 2012 to 15% in 2014. The fall in market share was accompanied by a decline in revenues and a sharp contraction in the EBITDA margin of the information management business. EBITDA margin of the division stood at 23% in 2014, down 8 percentage points from 31% in 2012. Currently, we expect Symantec’s market share in the global information management software market as well as EBITDA margin of the Veritas business to continue to decline throughout our forecast period.

The dual blow of declining revenues as well as falling profits makes Veritas a highly unattractive business for Symantec. Although the Veritas business generates positive cash flow, it still drags down the overall performance of the company due to low growth and constantly declining margins. It is worth noting that Symantec paid $13.5 billion for acquiring the Veritas business back in 2005. [2] The fact that the company is willing to sell off the business for a loss speaks volumes about how poorly the acquisition has panned out for the company. Thus, a successful sale of the Veritas business would be the beginning of a series of amends that Symantec will have to make to regain the investors’ appreciation.

If the sale of the Veritas business goes through, the increase in Symantec’s overall profitability could result in a 10% upside to our current valuation of the company.

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Notes:
  1. Symantec Said to Near Deal to Sell Veritas Unit to Carlyle, Bloomberg, July 8, 2015 []
  2. Symantec Press Release, December 16, 2004 []