Splunk (SPLK) Lands $1 Billion From Silver Lake, Announces Buyback One Day After Activist Rumors Surface

June 22, 2021 11:29 AM EDT
Get Alerts SPLK Hot Sheet
Price: $141.75 +0.48%

Rating Summary:
    38 Buy, 19 Hold, 0 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 18 | Down: 12 | New: 23
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Shares of Splunk (NASDAQ: SPLK) are up 12% in today’s trading session after the company announced a $1 billion investment from Silver Lake in the form of convertible senior notes to support the continued transformation of its business. Moreover, SPLK also announced a share buyback program of up to $1 billion in the open market. The repurchase is intended to offset the dilutive effect of the Notes, the company said.

Interestingly, the news comes one day after rumors were heard on the Street that the activist hedge fund Eliott Advisors was targeting the company.

SPLK said it will also use the raised capital to invest in growth initiatives and help manage its capital structure.

“We’ve significantly evolved our business since we began our transformation to become a cloud-first company over two years ago, and today’s announcement reaffirms the strength of our business fundamentals, cloud strategy and high-growth trajectory,” said Doug Merritt, President and CEO of Splunk. “Silver Lake has a strong reputation and track record of investing in innovative technology companies, and with their support, we are accelerating toward our goals as we deliver the most scalable and powerful data platform in the cloud.”

Kenneth Hao, Chairman and Managing Partner of Silver Lake, commented:

“We have long admired Splunk’s world-class team and technology, and we believe the company is now at an important inflection point. It has become increasingly clear that a cloud-driven transformation is critical to modernization and Splunk is ideally positioned to help organizations throughout the world manage the complexity associated with this transition. We are confident in the opportunities ahead and eager to work with Doug and his team to support Splunk’s next phase of growth,” Hao, who will also join the company’s board, said.

Rosenblatt analyst Blair Abernethy says Hao’s arrival to join the board is “a significant positive for the Splunk team.” Furthermore, the analyst commented:

“We view this investment as a positive indicator of the current attractive value of Splunk (trading at 8.1x FY22 EV/S at last close) and the growing opportunity it has in the IT and Security monitoring market. We expect Splunk to utilize these additional funds to speed up its product development roadmap, customer conversions to its Cloud-based offering and to fund additional tuck-in next-generation monitoring technologies. We maintain our Buy rating and $196 target price on Splunk.”

Similarly, Kamil Mielczarek from William Blair, is also positive on the company following today’s announcements.

“We expect Splunk’s new Security Cloud offering to accelerate the company’s transition and see potential for Splunk software bookings to be 80% cloud by the end of fiscal 2023. Along with the Security Cloud, Splunk also announced Security Analytics for AWS, which will be available in the AWS marketplace later this month. These product enhancements better position Splunk to maintain its leadership position in security analytics and SIEM. While competitors Dynatrace and Datadog have recently announced and began to ramp up their own cloud-based security offerings, we see this as a large, growing market and do not expect Splunk to feel any competitive pressures for at least the next two to three years,” Mielczarek said in a note to clients.

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