Coverage: The year’s biggest LBO

In the year’s biggest leveraged buyout, data-software company Informatica will be taken private by Permira Advisers and the Canada Pension Plan Investment Board.

The Wall Street Journal story by Gillian Tan had these details about the deal:

Data-software company Informatica Corp. agreed to be bought by Permira Advisers LLC and the Canada Pension Plan Investment Board for $5.3 billion, in the largest leveraged buyout so far this year.

The private-equity firms will pay $48.75 a share for the Redwood City, Calif., company, according to a statement Tuesday confirming an earlier report in The Wall Street Journal. The per-share price is about 6% above the company’s closing price Monday of $45.83.

Shares of Informatica had risen in anticipation of a possible deal as private-equity groups vied in an auction of the company. The Journal reported in January that the company was working with investment bankers and had made contact with potential buyers.

Informatica helps companies organize and analyze broad swaths of information, tapping the growing demand for help with managing what is known as big data. The company had revenue of around $1 billion in 2014, up about 11%.

The Informatica deal, set to be competed in the second or third quarter, is the largest private-equity buyout struck globally so far this year, eclipsing one for gym operator Life Time Fitness Inc. That deal, valued at more than $2.8 billion, was signed in March.

David Gelles wrote for The New York Times that Informatica was trying to change its model to meet consumer demand:

Like many technology companies, Informatica is scrambling to adapt to a rapidly changing industry. The company has been focused on moving to subscription-based models and cloud services, and the buyers said the company would continue these initiatives under the new ownership.

The deal tops the year’s previous biggest buyout, the $4 billion acquisition of Life Time Fitness announced last month by Leonard Green & Partners and TPG Capital.

The Informatica buyout is another big move for the Canadian pension fund, which has emerged as one of the most active private investors in recent years, with investments in Neiman Marcus, Univision and other big companies.

The deal comes months after Elliott Management, an activist hedge fund acquired a stake in Informatica. On Tuesday, the hedge fund applauded the deal.

Sohaib Abbasi, the Informatica chairman and chief executive, “has built a great company with a market-leading product portfolio and today he and his board have delivered truly outstanding value to shareholders,” Jesse Cohn, the hedge fund’s head of equity activism in the United States, said in a statement. “Congratulations to Permira and C.P.P.I.B., who we believe will be excellent partners for Informatica’s next phase of growth.”

Bloomberg’s Devin Banerjee had this background about the company and how it will add to Permira’s history of technology investments:

Informatica makes tools to help companies link together and manage large amounts of data. Like other traditional enterprise technology companies, it has been forced to change its products to respond to businesses storing more data in computers operated by third parties, such as Amazon.com Inc., and purchasing software via subscriptions rather than upfront license fees.

Private equity firms and other strategic buyers have embraced enterprise software, attracted by strong recurring revenue once businesses install the technologies that connect new products to existing systems.

“We are very excited about the company’s ongoing transition to cloud- and subscription-based services, as well as its continued pursuit of four separate billion-dollar market opportunities in cloud integration, master data management, data integration for next-generation analytics, and data security,” Brian Ruder, a partner at Permira, said in the statement.

London-based Permira, which traces its origins back to investment bank Schroders Plc, has a background in investing in technology, media and telecommunications companies, with more than a third of its deals since 1997 targeting technology-related assets. The firm has owned stakes in companies including television producer All3Media Ltd., satellite group Intelsat SA, family-history website Ancestry.com Inc. and educational-software provider Renaissance Learning Inc.

The Reuters story by Devika Krishna Kumar and Greg Roumeliotis said that Informatica’s biggest competitor had been taken private last year:

Informatica competes with Tibco, which was taken private for $4.3 billion in December by private equity firm Vista Equity Partners.

“Informatica … is better positioned (than Tibco) to benefit from the adoption of cloud technologies,” Mizuho Securities analyst Abhey Lamba wrote in a note on Monday.

Redwood City, California-based Informatica’s revenue rose 10.5 percent to $1.05 billion in 2014, while its pre-tax income jumped 21 percent to $170.3 million.

However, analysts have said the company’s shift to cloud and subscription revenue is pressuring margins.

Everyone is looking for cloud-based solutions and the competition continues to become more intense. As big data becomes more important, Informatica’s business should only grow, a boon for its private-equity investors. The trick will be if they can continue to innovate offerings and win customers.