LogMeIn plans to join forces with a division of rival Citrix Systems in a $1.8 billion deal aimed at creating a juggernaut in the world of cloud-based business software.
For much of its 13-year history, Boston-based LogMeIn (NASDAQ: [[ticker:LOGM]]) has been best known for cloud software that allows employees and IT service providers to remotely access and troubleshoot computers and other devices. But it has expanded its repertoire of products and services in recent years, largely through acquisitions. Those moves included a pair of small deals to build an Internet of Things business, and the $110 million-plus acquisition of LastPass, a cybersecurity-related company offering a “single-sign-on” and password management service for consumers and businesses.
Tuesday’s announcement marks LogMeIn’s most significant move to date. The deal will combine LogMeIn with Santa Clara, CA-based Citrix’s set of GoTo products, software tools that help small and medium-sized businesses communicate and collaborate. Citrix (NASDAQ: [[ticker:CTXS]]) announced plans to spin off the GoTo business in November, as it narrows its focus on technology that helps businesses securely manage apps and data.
For LogMeIn, the merger is a chance to scoop up a group of competing and complementary products. In a shareholder presentation, LogMeIn described Citrix as “a leader with an enormous customer base and the most recognized brands in the industry.” Those include GoToMeeting, Web conferencing software that competes with LogMeIn’s Join.me product; GoToMyPC, a competitor to LogMeIn’s product that enables remote access of devices; virtual phone system Grasshopper; and other products.
The deal, which is expected to close early next year, would turn LogMeIn into a $1 billion-plus company overnight. LogMeIn generated $271.6 million in sales last year, a number it expects to grow to more than $330 million this year. Citrix’s GoTo division, meanwhile, is projected to post more than $680 million in sales this year.
The companies said the combination should also provide opportunities for “synergies” that would reduce business costs by over $100 million within two years of sealing the deal. Those would come from “optimizing” spending on sales, marketing, products, and engineering, as well as from administrative “efficiencies.” (That’s likely code for layoffs.)
“Both companies have passionate employees who are committed to developing easy-to-use software that simplifies the way we connect with people, devices, apps, and products,” said LogMeIn president and CEO Bill Wagner (pictured above) in a prepared statement. “The additional scale of the combined company will allow us to accelerate innovation in order to deliver better outcomes for our customers, and also creates a compelling financial model that will reward our shareholders.”
The plan is for Wagner, who succeeded founding LogMeIn CEO Michael Simon last year, to lead the combined company. It will be based in Boston, employ nearly 3,000 people, and serve more than 2 million customers worldwide. The name of the combined entity has yet to be determined, a LogMeIn spokeswoman said.
The deal is being structured as a “Reverse Morris Trust” intended to be tax-free to Citrix and its shareholders for U.S. federal income tax purposes. Citrix will spin off the GoTo business, which will be merged into a subsidiary of LogMeIn. As part of the deal, Citrix shareholders will receive about 27.6 million shares of LogMeIn, valued at about $1.8 billion. LogMeIn will issue up to $1.50 per share in dividends to its shareholders before the deal closes. Citrix is also contributing $25 million in cash to the combined company.
After the transaction is completed, Citrix shareholders will own 50.1 percent of the combined company, while LogMeIn shareholders will own 49.9 percent.
Both companies’ boards have unanimously approved the deal, but it still requires LogMeIn shareholder approval.
LogMeIn’s stock price was up about 20 percent to $83.88 per share in after-hours trading, while Citrix’s stock was down about 1.5 percent to $88.
