Hedge fund and PE firm to buy Dell's software unit

For more than a decade, the hedge fund Elliott Management has focused on shaking up technology businesses with activist shareholder campaigns, urging companies to sell themselves.

Now the hedge fund has taken a big step into the business of buying companies outright.

Elliott and the private equity firm Francisco Partners said on Monday that they would buy Dell's software businesses. A price was not disclosed, though it is estimated to be more than $2 billion. The two are getting a mix of software makers that Dell acquired over the years, including the security provider SonicWall and the information technology manager Quest Software. Dell had looked to sell the businesses in part to help raise cash to support its debt-heavy takeover of EMC Software, which faces a vote by EMC shareholders next month.

Elliott has dabbled in private equity before, but in small ways. The hedge fund has offered to buy companies like Novell during activist campaigns, though largely as a tactic to try to prod those businesses into putting themselves up for sale. (The activist investor Carl C Icahn is a fan of the move.) And it has rolled over its stakes in other companies, including BMC and Blue Coat, when other financiers have bought control.

But Elliott's head of United States equity activism, Jesse Cohn, has quietly built a team to focus on being more active in buying companies or lending them money. In short, it is functioning like a true private equity business.

That has included hiring Isaac Kim, an executive at the private equity firm Golden Gate Capital, to lead that team, named Evergreen Coast Capital because it has a friendlier name without Elliott's baggage of shareholder activism.

Evergreen is meant to help expand what Elliott can do with its investments in the technology sector. Cohn's group can now wage traditional activist shareholder campaigns, though its targets have grown over the years. Or it can offer to buy companies outright.

The deal announced on Monday was one of the first, and the biggest so far, struck by the new team.

Elliott has been a long-term investor in the technology space and today's announcement continues our progress, Cohn said in a statement. We look forward to working with Francisco Partners to create significant value at these companies.

Elliott, which had helped prod EMC into selling itself to Dell in the first place, knew that Dell was interested in selling its software division and was familiar with that sort of corporate-focused business. It then teamed up with Francisco, which was also looking at the unit, and prevailed in an auction that was included other financial firms.

We founded our firm in 1999 to pursue divisional carve outs in the technology sector and today's agreement continues that vision, Dipanjan Deb, Francisco Partners' chief executive, said in a statement. Quest Software and SonicWall provide mission-critical software to a large and loyal base of over 180,000 customers, and we see significant opportunity to build upon the company's impressive technology and product portfolio.

Barclays and Citigroup provided financial advice to Francisco and Evergreen, while Credit Suisse and RBC Capital Markets provided debt financing. The law firms Kirkland & Ellis and Gibson Dunn dispensed legal counsel to the buyers. Goldman Sachs and the law firm Simpson Thacher & Bartlett advised Dell.

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