10-K: SolarWinds to be Acquired by Turn/River Capital in $18.50 Per Share Deal

SolarWinds Corporation has entered into a merger agreement with Turn/River Capital, resulting in the company becoming a privately held entity at $18.50 per share.

Summary

• SolarWinds, a provider of observability and IT management software, is set to be acquired by Turn/River Capital for $18.50 per share in cash.
• The merger agreement was executed on February 7, 2025, with major stockholders already approving the deal.
• The transaction is expected to close by November 7, 2025, pending regulatory approvals and other customary conditions.
• The deal includes a termination fee of $119.2 million payable by SolarWinds under certain circumstances and a $230.0 million fee payable by Parent under other specified circumstances.
• SolarWinds' 2024 total revenue increased by 5.0% to $796.9 million, driven by a 30.0% increase in subscription revenue.
• The company reported a net income of $111.9 million for 2024, a significant turnaround from the $9.1 million net loss in 2023.
• Annual Recurring Revenue (ARR) grew, with Subscription ARR increasing by 33.7% and Total ARR by 6.6%.

Sentiment

Score: 7

Explanation: The document presents a mixed sentiment. While the acquisition news and improved financial performance are positive, the ongoing Cyber Incident and macroeconomic risks temper the overall outlook.

Positives

• Subscription revenue increased by 30.0%, indicating a successful transition to a subscription-based model.
• Net income improved significantly, demonstrating a recovery in financial performance.
• ARR is growing, reflecting increased customer retention and expansion.
• The company is actively investing in research and development to enhance its product offerings.
• The company is expanding its international footprint, tapping into new markets.

Negatives

• License revenue decreased by 17.0%, reflecting the shift away from perpetual licenses.
• The company is still facing legal and financial repercussions from the Cyber Incident.
• The company has substantial indebtedness, which could affect its financial flexibility.
• The company is subject to fluctuations in interest rates, which could increase debt service obligations.

Risks

• The pending merger may not be completed, disrupting the business and affecting the stock price.
• Cyberattacks and security incidents could compromise systems and data, leading to financial and reputational damage.
• The company is subject to various global data privacy and security regulations, which could result in additional costs and liabilities.
• Adverse global macroeconomic conditions, including the wars in Ukraine and Israel, may negatively affect the business.
• The company is subject to pending litigation with the SEC, which has resulted in additional costs and expenses, the diversion of managements attention, unfavorable publicity and a negative impact on employee morale, and in the future could result in additional costs and potential penalties, as well as a bar against our Chief Information Security Officer from serving as an officer or director of a publicly traded company.

Future Outlook

The company expects to grow its subscription revenue by focusing more on selling subscriptions over perpetual licenses. The company anticipates that macroeconomic events could continue to negatively impact its results of operation.

Industry Context

The announcement reflects the ongoing trend of private equity firms acquiring established technology companies. The shift towards subscription-based models and observability solutions is a key industry trend that SolarWinds is actively pursuing.

Comparison to Industry Standards

• Comparable companies in the IT management and observability space include Datadog, Dynatrace, New Relic, BMC Software, and ServiceNow.
• Datadog and Dynatrace, for example, have shown strong growth in the cloud monitoring and observability market, setting a high benchmark for revenue growth and customer acquisition.
• ServiceNow is a leader in the IT service management space, providing a benchmark for SolarWinds' service desk offerings.
• The acquisition multiple of $18.50 per share will likely be compared to recent transactions in the software industry to assess its fairness.

Legal Proceedings

• The company is still dealing with the aftermath of the Cyber Incident, including ongoing litigation with the SEC.
• The SEC Complaint alleges violations of the Exchange Act and the Securities Act relating to our cybersecurity disclosures and public statements, as well as our internal controls and disclosure controls and procedures.

Stakeholder Impact

• Shareholders will receive $18.50 per share upon completion of the merger.
• Employees may experience uncertainty about their future roles following the merger.
• Customers may experience disruptions to business relationships during the transition.
• The company's ability to attract and retain key personnel may be affected.

Next Steps

• Obtain regulatory approvals for the merger.
• Fulfill customary closing conditions for the merger.
• Transition to a privately held company upon completion of the merger.
• Continue to focus on subscription-first approach and observability solutions.

Key Dates