In our "Foolish Dealbook" series, we like to dive down into some of the most interesting megadeals happening on Wall Street. There's been no shortage of them lately, and now private-equity firms are starting to move into riskier sectors, such as technology. Let's take a look at one such deal: the $7.3 billion transaction that will take CDW
CDW distributes technology products from leading brands such as Adobe
How the deal got done
May 2006: The founder and chairman emeritus of CDW, Michael Krasny, presented the idea of going private to the board. There was no interest at the time.
Feb. 9: Kransy reported to the board that two private equity firms had talked to him about a possible transaction for CDW. For confidentiality reasons, the names of the firms were not disclosed.
March 4: Now interested in a transaction, the board authorized Morgan Stanley
March 21-22: CDW received five indications of interest, with preliminary offers from $68 to $78 per share. The company's stock price at the time was $62.05.
April 24: With a strong first-quarter report and guidance, CDW's stock reached $71.77.
May 2: There were four revised indications of interest, with prices ranging from $78.50 to $86 per share. The current stock price was $73.57 and would reach nearly $80 within a week.
May 25: Private-equity firm Madison Dearborn said it was prepared to offer $87 per share. Within a few days, The Wall Street Journal reported some of the details of the negotiations.
May 29: Madison Dearborn teamed up with Providence and bumped the offer to $87.75 per share. CDW agreed to the deal.
Morgan Stanley then spoke with five potential strategic buyers and 140 attorneys, private-equity professionals, and executives. Despite the effort, there were no other offers.
Valuation
William Blair performed a valuation on CDW, comparing it to a variety of companies, including Ingram Micro
| Metric |
CDW |
Selected Companies' Range |
Selected Companies' Average |
|---|---|---|---|
|
Enterprise Value / LTM* Revenues |
0.96 |
0.10-1.29 |
0.36 |
|
Enterprise Value/ LTM* EBITDA |
14.2 |
6.6-12.4 |
9.4 |
Based on the analysis above, it seems that CDW got a premium valuation. That's also the case based on William Blair's number-crunching on 15 related merger-and-acquisition transactions. Those results showed an average valuation of 0.38 times revenues and 8.4 times EBITDA, both for the last 12 months.
The dealbook lowdown
Why the high valuation? CDW has significant barriers to entry because of its infrastructure, long-running vendor relationships, and brand name. The company also has fairy predictable cash flows, and it's been growing at a healthy rate for years now. CDW is even a Motley Fool Stock Advisor pick, and it garners a four-star rating from the Motley Fool CAPS community. But while there may be some speculation left in the stock before the deal closes, it's probably best left to the traders.
Get a great deal on further Foolishness:
Microsoft is a Motley Fool Inside Value recommendation.
Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares mentioned in this article. He is currently ranked 2,478 out of more than 60,000 investors in CAPS.
