SolarWinds Stock Flies Higher after Completing Spin-Off

Shares of SolarWinds (NYSE: SWI) are flying higher on Tuesday after completing the previously announced divestiture of N-able (NYSE: NABL), which is now an independent company that trades publicly.

N-able is a rebranding of SolarWinds’ managed service provider (MSP) business. 

As of 11:50 a.m. EDT, SolarWinds shares were up by 12%.

The SolarWinds brand took a massive hit

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

The division is trying to distance itself from the SolarWinds name following the massive hack that was discovered in late 2020, which impacted a variety of major government agencies and was linked to Russian hackers. SolarWinds disclosed a few months back that N-able sales declined following the cyber attack.

“As a part of SolarWinds and our prior branding as ‘SolarWinds MSP,’ the cyber incident has harmed, and is likely to continue to harm, our reputation, our MSP partner and employee relations and our operations and business,” N-able conceded in March. “We believe the cyber incident has caused reputational harm to SolarWinds and also had an adverse impact on our reputation, new subscription sales and net retention rates.”

SolarWinds had started exploring the spin-off of its MSP business since August of last year in order to unlock value for shareholders.

The company believed that investors would be able to better assess the performance and value of each organization on a standalone basis, while letting each company make their own decisions around strategy and capital allocation. 

Companies that believe operating segments are being undervalued by the public market sometimes divest those businesses if they think investors will assign greater value to each organization separately. eBay’s (NASDAQ: EBAY) spinoff of PayPal (NASDAQ: PYPL) back in 2015 is a prominent example of such a move working out well.

Going it alone

As part of the corporate action, SolarWinds shareholders of record as of July 12 will receive one share of N-able stock for every two shares of SolarWinds stock they hold. The company will pay cash in lieu of any fractional shares.

N-able completed a private placement earlier this month, raising $225 million in gross proceeds and issuing 20.6 million shares at a price of $10.91 per share.

The company transferred the net proceeds from that deal to SolarWinds prior to completing the business separation, and SolarWinds is using the cash to fund cash distributions to investors as well as to pay down existing debt.

N-able is not keeping any of the cash, and the net proceeds were $216 million after deducting placement agent fees and other transaction expenses.

In order to help fund its future as an independent company, N-able has also established various credit facilities that will give it access to cash. The company will have a $410 million secured credit line, which will include a $60 million revolver and a $350 million term loan, according to regulatory filings.

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