OTPP Buys Stake in Dell's Cybersecurity Unit

Dell Technologies Inc said on Tuesday it would sell its cybersecurity unit RSA for $2.08 billion to a consortium led by Symphony Technology Group, Ontario Teachers’ Pension Plan and AlpInvest Partners. OTPP put out this press release:
A consortium led by Symphony Technology Group (STG), Ontario Teachers’ Pension Plan Board (Ontario Teachers’) and AlpInvest Partners (AlpInvest) has entered into a definitive agreement with Dell Technologies (NYSE: DELL) to acquire RSA in an all-cash transaction for $2.075 billion, subject to certain adjustments. The transaction, which includes the purchase of RSA Archer, RSA NetWitness Platform, RSA SecurID, RSA Fraud and Risk Intelligence and RSA Conference, is expected to close in the next six to nine months. Terms of the agreement were not disclosed.

RSA provides risk, security and fraud teams with the ability to holistically manage digital risk, including threat detection and response, identity and access management, integrated risk management and omnichannel fraud prevention. Today, more than 12,500 customers rely on RSA to enable their digital transformation, address increasingly advanced cyber threats and adapt to more complex digital regulations. RSA Conference is the world’s largest security conference where leading experts gather to discuss the most important cybersecurity trends, challenges, solutions and innovations.

“As one of the world’s elite security brands, RSA represents a great opportunity for solving some of the rapidly developing customer challenges that go along with digital transformation,” said William Chisholm, Managing Partner at Symphony Technology Group. “We are excited and fully committed to maximizing the power of RSA’s talent, expertise and tremendous growth potential and continuing RSA’s strategy to serve customers with a holistic approach to managing their digital risk.”

“This is the right long-term strategy for Dell, RSA and our collective customers and partners,” said Jeff Clarke, Chief Operating Officer and Vice Chairman, Dell Technologies. “The transaction will further simplify our business and product portfolio. It also allows Dell Technologies to focus on our strategy to build automated and intelligent security into infrastructure, platforms and devices to keep data safe, protected and resilient.” The transaction is subject to customary conditions. Morgan Stanley & Co. LLC is acting as exclusive financial advisor to Dell Technologies. Hogan Lovells is acting as legal advisor to Dell Technologies.

UBS Investment Bank and Jefferies LLC are acting as financial advisors to STG and Davis Polk & Wardwell LLP is acting as legal advisor. UBS Investment Bank and Jefferies Finance LLC are providing financing for the acquisition.

Additional Information:
About Symphony Technology Group

Symphony Technology Group (STG) is the private equity partner to market leading companies in data, software, and analytics. The firm brings expertise, flexibility, and resources to build strategic value and unlock the potential of innovative companies. Partnering to build customer-centric, market winning portfolio companies, STG creates sustainable foundations for growth that bring value to all existing and future stakeholders. The firm is dedicated to transforming and building outstanding technology companies in partnership with world class management teams. STG’s expansive portfolio has consisted of more than 30 global companies. For more information, please visit www.stgpartners.com.

About Ontario Teachers’

The Ontario Teachers’ Pension Plan (Ontario Teachers’) is Canada’s largest single-profession pension plan, with $201.4 billion in net assets at June 30, 2019. It holds a diverse global portfolio of assets, approximately 80% of which is managed in-house, and has earned an annual total-fund net return of 9.7% since the plan’s founding in 1990 (all figures as at Dec. 31, 2018 unless noted). Ontario Teachers’ is an independent organization headquartered in Toronto. Its Asia-Pacific region office is located in Hong Kong and its Europe, Middle East & Africa region office is in London. The defined-benefit plan, which was fully funded as at December 31, 2018, invests and administers the pensions of the province of Ontario’s 327,000 active and retired teachers. For more information, visit www.otpp.com and follow us on Twitter @OtppInfo.

About AlpInvest

AlpInvest is a leading global private equity investor, with more than $42 billion of assets under management as of September 30, 2019 and more than 170 employees across offices in New York, Amsterdam, Hong Kong, London, San Francisco and Indianapolis. Since its inception, AlpInvest has invested with over 350 managers and committed approximately $68 billion across over 690 primary commitments to private equity funds, more than 135 secondary transactions and in excess of 250 equity co-investments. AlpInvest offers customized private equity investment solutions to investors through separately managed accounts and commingled funds. For more information, please visit www.alpinvest.com.

About RSA

RSA offers business-driven security solutions that provide organizations with a unified approach to managing digital risk that hinges on integrated visibility, automated insights and coordinated actions. RSA solutions are designed to effectively detect and respond to advanced attacks; manage user access control; and reduce business risk, fraud and cybercrime. RSA protects millions of users around the world and helps more than 90 percent of the Fortune 500 companies thrive and continuously adapt to transformational change.

About Dell Technologies

Dell Technologies (NYSE:DELL) helps organizations and individuals build their digital future and transform how they work, live and play. The company provides customers with the industry’s broadest and most innovative technology and services portfolio for the data era.
This is quite a big deal, a co-investment led by Symphony Technology Group (STG), a private equity partner to market leading companies in data, software, and analytics.

AlpInvest is also co-investing in this deal alongside Teachers' and STG, which tells me this is a great deal.

Why would Teachers' want to own a stake in Dell's cybersecurity unit RSA? To really understand, you need to read the additional information provided in the press release:
Jeff Clarke states the following:
As we enter the next data decade, our customers need to secure and protect data everywhere it exists – at the edge, in the core and in cloud environments – and Dell Technologies is committed to continued innovation in security capabilities and services. We continue to innovate across our portfolio with automated and intelligent security features, functionality and services built into infrastructure, platforms and devices to keep data safe, protected and resilient.

We’ve been working over the last three years to simplify our business and product portfolio to make it easier for our customers to meet their digital transformation requirements. The strategies of RSA and Dell Technologies have evolved to address different business needs with different go-to-market models. The sale of RSA gives us greater flexibility to focus on integrated innovation across Dell Technologies, while allowing RSA to focus on its strategy of providing risk, security and fraud teams with the ability to holistically manage digital risk.

In determining the best long-term future for RSA, we sought a partner that was enthusiastic about RSA’s mission, committed to its customer and partner base, and interested in maximizing the power of RSA’s talent, experience, and tremendous growth potential. We believe Symphony Technology Group will be the right custodian to achieve these goals.

RSA, including RSA Conference, is invaluable to our customers and the security community at large – and with that in mind we will work to ensure a seamless transition.

Until the transaction closes, which we expect to be within the next six to nine months, it is business as usual.
And RSA President, Rohit Ghai, had this to say on the deal:
Today's news signals our transition into the next episode of the iconic story of RSA. The one constant in every episode of our existence has been our focus on the success of our customers and our ability to endure through market disruption by innovating on behalf of our customers. This news heralds an exciting opportunity for RSA to accelerate its journey and fully embrace our mission to help customers thrive in today's high-risk digital world.

In determining the best way to support our customers' digital journeys, we sought a partner that was enthusiastic about RSA's mission; committed to our customer and partner base; and interested in unleashing the power of our talent, experience, and tremendous growth potential. Symphony Technology Group (STG) fully supports our vision, and with a more independent configuration, we expect to be in an even better position to accelerate innovation, ensure customer success with our portfolio of on-prem and cloud solutions, and expand opportunities for our partner ecosystem.

Until the transaction closes, it will be business as usual. RSA, STG and Dell Technologies will work closely together after the transaction closes to ensure a smooth transition, and to provide all of our stakeholders with the same level of dedication, service and support they've come to expect from RSA.

We believe today's announcement is great news for all of our stakeholders, and we are excited about the opportunity to take this journey to the next level and unleash the full potential of RSA.
The world is going digital through cloud solutions and as it does, there are new risks to companies and consumers and that's where RSA comes in.

As it partners up with STG, the company will focus on accelerating innovation and improving its services and product offering for customers looking for cloud solutions to ensure the safety of their data through all the digital processes.

As RSA grows its revenues and becomes an even bigger player in its field, I suspect STG, OTPP and AlpInvest will eventually look to sell this unit to another strategic competitor down the road.

In the meantime, OTPP has the expertise of a leading cybersecurity company in its portfolio and that will help it bolster Teachers' Innovation Platform (TIP).

Apart from TIP, OTPP's new venture incubator, Koru, just announced the appointment of accomplished technology executive Garrick Tiplady as its board chair, effective immediately:

Koru's press release states the following:
Koru, the venture foundry launched by Ontario Teachers’ Pension Plan (Ontario Teachers’), is pleased to announce the appointment of accomplished technology executive Garrick Tiplady as its board chair, effective immediately.

Headquartered in Toronto, Koru works together with the pension plan’s portfolio companies to create, test and build scalable new digital businesses. Koru is a partnership with BCG Digital Ventures – the global corporate venture, investment and incubation arm of Boston Consulting Group – to foster innovation and leverage a competitive advantage for Ontario Teachers’ portfolio companies. Koru’s multi-disciplinary team has already begun to unlock value across sectors including healthcare, utilities and transportation.

“Koru’s approach to incubating and growing digital businesses for companies in Ontario Teachers’ investment portfolio, highlights the immense opportunity unlocked by technology for businesses and more broadly, Canadians,” said Mr. Tiplady. “I’m thrilled to join Koru’s board of directors and work alongside Ontario Teachers’ and BCG Digital Ventures in support of Canada’s innovation ecosystem.”

Mr. Tiplady has more than 20 years of experience managing and advising businesses globally and has deep expertise in the digital and new venture space. He is currently the Managing Director of Facebook and Instagram Canada and serves on the boards of ThePowerPlant and Right to Play International, in addition to Koru. He was previously the CEO of Vemba, an enterprise management platform for premium video distribution, and held several senior executive roles at Rogers Communications.

“As a leader in the tech industry, Garrick brings a wealth of knowledge and expertise to the board,” said Bryan Marcovici, General Manager and Managing Partner of Koru. “I look forward to working with him as we grow and launch some exciting new ventures in 2020 and beyond.”
Incubating and growing digital businesses and investing in Dell's cybersecurity business go hand in hand if you ask me.

In another deal announced today, Fairstone Financial Holdings was acquired by Duo Bank of Canada which is supported by Teachers' and Centerbridge Partners:
Duo Bank of Canada (“Duo Bank”), a Toronto-based financial services provider supported by Stephen Smith, Centerbridge Partners L.P. and Ontario Teachers’ Pension Plan (“Ontario Teachers’”), has reached a definitive agreement to purchase all outstanding shares of Fairstone Financial Holdings Inc. (“Fairstone” or “the Company”), which includes all operating subsidiaries, from an investor group led by J.C. Flowers & Co. LLC and Värde Partners, Inc. Headquartered in Montreal, Fairstone is Canada's leading non-bank provider of responsible credit solutions for near-prime borrowers with over $3 billion in assets on a consolidated basis.

“Duo Bank’s mission is to provide value-driven financial products that are clear and simple, enabling Canadians to focus on what matters to them. Fairstone’s close to 100-year history of providing near-prime borrowers with access to responsible credit is perfectly aligned with this mission,” said Stephen Smith, Chairman of Duo Bank.

“We’re very pleased to be joining forces with a Canadian financial services institution that shares our customer-focused commitment and community-driven approach to helping everyday Canadians access financial solutions that fit their needs,” said Scott Wood, President and Chief Executive Officer of Fairstone. “We look forward to enhancing the complementary growth potential of both businesses.”

“Duo Bank specializes in turnkey and customizable financial services solutions designed to deepen customer loyalty and grow sales,” said Trudy Fahie, Chief Executive Officer of Duo Bank. The bank’s growing complement of products and services includes credit cards, rewards programs, retail sales financing, deposits and related protection services.

Fairstone has two key business lines: lending directly to consumers through its branch network and online platform, and financing consumer retail and vehicle purchases through retailers and automobile dealerships. J.C. Flowers and Värde Partners acquired CitiFinancial Canada from Citi in 2017 and rebranded the company as Fairstone.

“Throughout Fairstone’s growth and expansion, it has maintained a laser focus on the customer experience as well as a strong compliance and controls environment from its former legacy under bank ownership. We are excited to partner with the Fairstone team through Duo Bank to support their combined next phase of growth,” said Miriam Tawil, Managing Director at Centerbridge.

“This transaction creates a strong and diversified Canada-based financial services entity that has robust finances, operational excellence and a history of delivering topline and earnings growth. We look forward to working with our partners, Stephen Smith and Centerbridge, to support the combined company’s future success,” said Jane Rowe, Executive Managing Director, Equities at Ontario Teachers'.

The agreement includes all of Fairstone’s operations as well as all the Company’s 1,400+ employees. The transaction is expected to close in the second quarter of 2020 and is subject to regulatory approvals and other customary closing conditions. Terms of the transaction are not disclosed.

About Fairstone Financial Holdings Inc.

Fairstone is Canada's leading non-bank provider of responsible lending solutions for near-prime borrowers with over $3 billion in assets on a consolidated basis. Fairstone, including through its predecessors, has close to a 100-year history of providing Canadians with access to responsible credit. The Company has two key business lines: lending directly to consumers through its branch network and online; and financing consumer retail and car purchases through retailers and dealerships. Headquartered in Montreal, Fairstone is privately held by an investor group led by funds managed by affiliates of J.C. Flowers & Co. LLC and Värde Partners. More at Fairstone.ca.

About Duo Bank of Canada

Duo Bank is a Schedule I Canadian Bank founded on a mission to provide value-driven financial products that are clear and simple, to help Canadians focus on what matters to them. Duo Bank specializes in turnkey and customizable financial services solutions designed to deepen customer loyalty and grow sales. The growing complement of products and services includes credit cards, rewards programs and related protection services and deposits. With a value-driven approach to financial services, robust sales channels and innovative and efficient operational solutions, Duo Bank partners with industry leading service providers to deliver financial solutions for its customers. Headquartered in Toronto, Duo Bank is privately held by an investor group led by funds managed by affiliates of Stephen Smith and Centerbridge Partners, L.P. More at www.duobank.com.

About Stephen Smith

Stephen Smith, one of Canada's leading financial services entrepreneurs, is the Chairman, CEO and Co-founder of First National Financial Corporation, Canada's largest non-bank mortgage lender with $110 billion of mortgages under administration. He is the Chairman of Canada Guaranty Mortgage Insurance Company, which he owns in partnership with Ontario Teachers' Pension Plan and is the largest shareholder in Equitable Bank, Canada's leading alternative lender and the country's ninth largest bank. In 2015, Queen's University announced the naming of the Stephen J.R. Smith School of Business at Queen's University in honour of Mr. Smith and his historic $50 million donation to the school.

About Centerbridge Partners, L.P.

Centerbridge Partners, L.P. is a private investment management firm employing a flexible approach across investment disciplines – from private equity to credit and related strategies, and real estate – in an effort to find the most attractive opportunities for our investors and business partners. The firm was founded in 2005 and as of December 2019 has approximately $27 billion in capital under management with offices in New York and London. Centerbridge is dedicated to partnering with world-class management teams across targeted industry sectors and geographies to help companies achieve their operating and financial objectives. For more information, please visit www.centerbridge.com.
Recall Stephen Smith was inducted into the Canadian Business Hall of Fame last June along with Claude Lamoureux, OTPP's inaugural CEO, and a few other inductees.

Mr. Smith is one of Canada's leading financial services entrepreneurs. He has revolutionized non-bank mortgage lending and that's why OTPP partnered up with him on this deal.

Mr. Smith was also one of the founders and the anchor investor in Peloton Capital Management, a new Canadian private equity firm with a long-term approach to middle-market buyouts in North America run by two former Teachers' Private Capital managing directors, Mike Murray and Steve Faraone. I wrote about them here.

This reminds me, Nicole Musicco who left Teachers' in 2018 to head IMCO's Private Markets only to leave that organization a year later (the fit was obviously not right for her) recently joined RedBird Capital Partners, a private equity firm she helped found back in 2014:
Nicole Musicco is a Partner of RedBird Capital Partners. Nicole has been affiliated with the firm since its inception in 2014. RedBird was initially launched in 2014 with anchor capital from Ontario Teachers’ Pension Plan (“OTPP”) and a group of Entrepreneurs and Family Offices that had a long investment history with the firm’s principals. At the time, Nicole led the Private Equity Fund and Co-Investment program at OTPP, which oversaw the investment in RedBird. Nicole also represented OTPP on the RedBird Investment Committee from 2014 to 2017.
While I'm happy for Nicole, I must say the optics of joining a firm you helped found don't look too good but the truth is she did leave OTPP to head up IMCO's Private Markets and didn't jump ship right away to RedBird.

I mention this for obvious governance reasons just like I was surprised to hear CDPQ's former head of Private Equity, Stephane Etroy, recently joined Ares Management Corporation (NYSE: ARES) as a Partner and Head of European Private Equity.

These are two outstanding investment professionals who were recruited to these firms because they're very good at what they do and have tremendous experience, but it's the optics and governance which irks me a little (still, they paid their dues before joining these private firms).

What else? Andrew Claerhout, OTPP's former head of Infrastructure and the guy I thought would one day be a shoe-in to lead this organization before he fell victim to ruthless and dumb politics there, recently joined Searchlight Capital Partners, another private equity firm co-founded by a former Teachers' Private Capital managing director, Erol Uzumeri.

At Searchlight, Andrew Claerhout, together with existing Partner Darren Glatt, will be leading infrastructure investments for the firm. Needless to say, I think extremely highly of Andrew and invite my readers to contact him at Searchlight's Toronto office if they're interested in intelligently investing in infrastructure now that valuations are back at nosebleed levels.

What else? Several people informed me that Barb Zvan, OTPP's Chief Risk & Strategy Officer, announced she will soon be leaving the organization.

If pensions are now looking to implement TCFC recommendations, it's because Barb Zvan laid the groundwork and foundations.

Barb was kind enough to share this with me:
After many (24!) great years I am leaving Teachers’, and excited about what comes next. I will be here until the end of February. Let’s keep in touch, and when the time is right I can share more about what’s next for me.

I have had a great career at Teachers’. I joined way back in September 1995 as an Assistant Portfolio Manager in the Research and Economics team. It was great to see my role elevated over the years as we focused on risk budgeting and really honed in on the portfolio being built to match our long-term liabilities. I’ve always been in this job first and foremost for the plan members, and I hope my work has helped ensure their retirement security over the long term.

There’s a great team in place of really talented people who will continue to focus on key initiatives on risk, climate change, ESG and plan sustainability. I’m also really proud of the work I’ve done with many industry organizations, and I am discussing my transition with them now. Thank-you for coordinating last year the discussion at Mont-Tremblant – always pleased to support the work of the Expert Panel on Sustainable Finance by speaking about it with peers and believe it is an important dialogue to continue.
While I don't know where she is headed, this departure represents another major blow to the organization.

In the last few years, Teachers' has lost very experienced professionals and these people aren't easy to replace. No matter what anyone tells you, even though there is good bench strength, the departures of seasoned veterans have weakened the organization.

Lastly, I bring to your attention to a conversation with Jim Leech, OTPP's former CEO, on Real Vision discussing the third rail of pensions:

You can view this enire conversation here but it requires a subscription. I am able to share this brief clip with you:

Jim is an outstanding communicator and I'm glad I put him in touch with the team at Real Vision so he can share his thoughts and insights on pensions and the ongoing retirement crisis.

He also shared stories about how Teachers’ got into private equity and took on established players like KKR.

Below, data is the new currency and risks are multiplying faster than ever - from the boardroom to the farmland and everywhere in between. See why, in this brave, new connected world, managing risk is now an essential part of everyone's business.

Also, why should your business be thinking about digital risk management? Watch as RSA CTO Zulfikar Ramzan, Ph.D explains what it is and why it's important. Learn more about digital risk here.

With the rise of digital commerce and cloud computing, you can understand why this deal is so important to Teachers' and its partners.

Third, last night PBS Frontline had an engrossing show on The Amazon Empire: The Rise of Jeff Bezos. You can watch the trailer below. The full episode is available here (in selected regions). The show was biased against Amazon but fairly balanced and very thought-provoking (makes me wonder how long before Big Tech succumbs to massive regulations).

Last but not least, a blog reader of mine sent me a great podcast featuring Chris Schindler who joined the Asset Liability Group at Ontario Teacher’s Pension Plan in 2000 and soon became one of the founding members of the newly formed Tactical Asset Allocation Group.

Most of his 18 years at Teachers’ were spent exploring and developing quantitative tools and strategies to optimize portfolio allocations. An early insight regarding the importance of maximizing investment breadth (or unique independent return drivers) drove his research towards the world of CTAs and Risk Parity, eventually becoming one of the pioneers in Alternative Risk Premia (ARP).

I embedded the podcast below and you can also listen to it here. Take the time to listen to Chris, he's one very sharp guy who really understands his subject matter in-depth.