Will SolarWinds Stop Trading Publicly?

• On Friday, SolarWinds Inc SWI announced that, responding to an “unsolicited expression of interest from a third party,” its Board has started to review strategic alternatives.
• In a report issued on the same day, FBR analyst Daniel H. Ives shared a few thoughts on the issue and reiterated an Outperform rating on the stock.
• Shares of SolarWinds are up more than 12 percent on Friday trading.

According to the report, the Board’s review of strategic options following the expression of third party interest “may result in SolarWinds continuing to pursue value-enhancing initiatives as a standalone company or a possible sale or other form of business combination.”

Related Link: SolarWinds Announces Review of Strategic Alternatives

Ives notes that this is a “potentially rosy scenario” for shareholders who have stuck with this company through thick and thin, especially over the last year – a period over which it has faced several execution issues.

From a financial standpoint, FBR analysts estimate SolarWinds could be acquired for $55 to $60 per share (roughly 25 times the Street’s fiscal 2016 EPS estimate) as they believe the main bid would come from private equity.

“Given the company’s unique tool based, low touch model we see no strategic buyers for SolarWinds as a financial buyer clearly makes the most sense given its free cash flow generation and stickiness,” the report expounds.

Fundamentally speaking, the experts think the company is starting to witness a rebound from a poor performance in the second quarter, and should be poised to deliver some seasonal strength in the second half of the year.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.