SolarWinds stock will fly higher after the spin-off completes


    Shares in SolarWinds (NYSE: SWI) will rise on Tuesday following the completion of the previously announced divestment of N-capable (NYSE: NABL), which is now an independent company that is publicly traded.

    N-able is a rebranding of the Managed Service Provider (MSP) business of SolarWinds.

    At 11:50 a.m. EDT, SolarWinds stock was up 12%.

    The SolarWinds brand has suffered a massive hit

    SolarWinds acquired N-able for $ 120 million back in 2013, and N-able enjoys a strong brand among IT professionals.

    The division is trying to distance itself from the name SolarWinds after the massive hack discovered in late 2020 that affected a large number of large government agencies and has been linked to Russian hackers. SolarWinds announced a few months ago that N-able sales had declined following the cyber attack.

    “As part of SolarWinds and our previous brand as ‘SolarWinds MSP’, the cyber incident has and is likely to continue to damage our reputation, our MSP partner and employee relationships, our operations and our business,” N-able admitted in March . “We believe the SolarWinds cyber incident damaged our reputation and had a negative impact on our reputation, new subscription sales and net retention rates.”

    SolarWinds had started looking into spinning off its MSP business since August last year in an attempt to create value for shareholders.

    The company believed that investors could better assess the performance and value of any organization on their own basis, while each company made its own decisions about strategy and capital allocation.

    Companies that believe that operating segments are undervalued by the public market sometimes divest these companies if they believe that investors place greater value on each organization separately. Ebay‘s (NASDAQ: EBAY) spin-off of PayPal (NASDAQ: PYPL) in 2015 is a prominent example that such a move works well.

    Walk alone

    As part of the corporate action, SolarWinds shareholders of record on July 12th will receive one N-able share for every two SolarWinds shares they hold. Instead of fractions of the shares, the company pays out in cash.

    N-able completed a private placement earlier this month that raised gross proceeds of $ 225 million and issued 20.6 million shares at a price of $ 10.91 per share.

    The company transferred the net proceeds from this transaction to SolarWinds prior to the completion of the separation, and SolarWinds will use the cash to fund cash distributions to investors and to repay existing debt.

    N-able has no cash on hand and net proceeds of $ 216 million net of placement agent fees and other transaction costs.

    To fund his future as an independent company, N-able has also set up various credit facilities that give him access to cash. The company will have a $ 410 million secured line of credit that will include a $ 60 million revolver and a $ 350 million term loan.

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    Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Millennial Money is part of The Motley Fool Network. Millennial Money has a disclosure policy.


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