Here's some more math on what happened with 3Com going private equity with Bain and Huawei.*
Here are the facts so far to consider:
- Total Deal value = $2.2 billion.
- H3C was valued at $1.8 billion in March 2007 as 3Com completed the purchase of the 49% it didn't own from Huawei for $882 million.
- TippingPoint, to be IPO'd in the coming months, was valued at $430 million when 3Com acquired it January 2006.
- Now, TippingPoint revenues are approximately $100 million/year up from the $33 million/year 22 months ago.
- 3Com has $559 million in cash on the balance sheet.
What should the TippingPoint division be worth today?
Good question. I'm sure they're developing their own peer evaluation and that's what the investment bankers are paid big bucks to calculate, but my method is to do a straightline. If TippingPoint was worth $430/$33 = 13 x revenue a short 22 months ago, at the outside, it could be worth 13 x revenue today, or a whopping $1.3 billion in 2 months should the schedule for an IPO by calendar year end stay on target.
That would make 3Com proper, the LAN switching and VoIP player, worth:
$2.2 billion – $559 million in cash – $1.8 billion for H3C – $1.3 billion for TippingPoint = – $1.46 billion.
That's right, a negative $1.46 billion.
So, the 3Com part of 3Com isn't worth much. Sadly, 3Com is irrelevant to most customers. They are a laggard in VoIP, are a laggard in enterprise switching and the small business operation is so much discount propping (at least when I was there) that it's just a cash drain.
if Bain can enable the decomposition exercise, and slash the overhead (isn't Edgar doing this already? – 3Com was not at InterOp Las Vegas), it won't be hard to create something more valuable than what the numbers show.
* Brockmann & Company holds no interest in 3Com and has no client relationship with 3Com at this time.
