Carlyle’s McCarter: Veritas Growth was ‘Untapped’

An exclusive interview with The Carlyle Group’s Patrick McCarter, one of the managing directors that lead this year’s biggest private equity deal to-date—an $8B carve-out of Symantec’s Veritas division.

With its landmark $8B buyout of the Veritas division of Symantec, The Carlyle Group hopes to unlock the potential of a “untapped” storied business acquired by the security giant in 2005, according to Carlyle’s Patrick McCarter.

The deal, if completed, will be the largest of the year to date. The current top deal is Permira Advisors and the Canadian Pension Plan Investment Board’s buyout of healthcare software provider Informatica earlier this year for a reported $5.3B.

Veritas, a market leader in backup and recovery software and appliances, storage management, clustering, disaster recovery, archiving and eDiscovery solutions, serves over 80 percent of all Fortune 500 companies, among others. The Veritas business generated $2.5 billion in revenue for Symantec in fiscal year 2014, according to Symantec’s website, and competes in markets that are an estimated $11 billion.

The Carlyle Group named Bill Coleman, the Founder and CEO of software company BEA Systems, who also worked as an advisor to Carlyle while the firm did due diligence on the company – as CEO of Veritas. In addition, Carlyle’s Bill Krause, an operating executive in the Technology, Media and Telecom group, will be chairman.

Symantec, the maker of Norton Antivirus software, has seen revenues decline amid weak PC sales (Norton comes bundled with computers). Experts say the sale of Veritas, which is likely to close January 1, 2016 – will net the security giant some $6.2B in profit, and will give the company much-needed time to re-focus efforts from PC to network security, which is a growing concern among many companies post-Dodd-Frank.

Privcap spoke with McCarter, a 12 year veteran at Carlyle, about the Veritas deal, what Caryle sees in the business, and the likelihood of an IPO.

Privcap: What attracted The Carlyle Group to Veritas?

Patrick McCarter, Carlyle: We have been looking at the asset for quite awhile. It’s been rumored that within Symantec these two businesses could be coming apart and we look at Veritas as an iconic brand. It’s the number-one or -two market leader in what we believe is a growing market (data-storage, backup and recovery).

It’s a very large and important deal for our team; we are very excited about it. At Carlyle we do many carve-outs, and it’s something that we’re known for and we know well.

What kind of potential do you see in Veritas?

McCarter: On its own it’s a company with great potential, because under Symantec its growth was untapped. Symantec is really a security company and they’ve been under attack by several startups in the security market, so we look at Veritas as an unemphasized asset under that umbrella. We feel that taking this diamond out of the rough is really going to create some growth potential. It’s a market leader with a great brand, a great management team, and great technology, and we feel like we have an excellent chance to turn this into a great story for Vertias, its employees, and Carlyle.

What was your thought process in bringing Bill Coleman in as CEO?

McCarter: When we started to look at the asset—and we do this frequently—we searched for someone who is a great expert in the field, who could help us with the diligence and who could ask the questions that we might not ask, and Bill Kraus, who is a long-time operating executive at Carlyle and who will be involved with this asset as chairman, introduced us to several candidates and Bill [Coleman] was one of them. Bill (Coleman) started working on the diligence with us from day one, and attended the first management presentation as our advisor. He started to see the vision for the company and he was very excited about it, so we struck a deal with him to take over the leadership. We couldn’t be more thrilled. He has a great background. The experience he has achieved in his career has lined him up to take over the kind of company we have in Veritas.

Veritas has an extremely loyal customer base. Can you pinpoint what makes their customers so long-standing?

McCarter:  They have great relationships with their customers and they’ve had long-term customers, including 80 percent of the Fortune 500 companies. what makes their customers so loyal is, number one, the technology is great, and two, they’re very sticky. They are the backbone of these companies because they are backing up their systems. It’s a mission-critical function and part of the heart of the IT organization. Couple that with great customer service, and a great product, and [that] they’ve also been innovating over the years, Veritas has become a trusted brand among CIOs.

Since Symantec never did spin Veritas off as a separate company, could an initial public offering be part of an exit strategy down the road?

McCarter: Absolutely. An IPO is how we exited lot of the carve-outs we’ve done, Axalta [Coating Systems] being one of them, we try to add value in various ways through our relationships and expertise, but a very likely exit for Veritas would be an IPO down the road. It doesn’t have to be, but it is a likely outcome.