Bain Builds Software AG Stake in Challenge to Silver Lake

Bain Capital has rapidly built a stake in Software AG, raising the prospect of a takeover battle for the German company, people with knowledge of the matter said.

(Bloomberg) — Bain Capital has rapidly built a stake in Software AG, raising the prospect of a takeover battle for the German company, people with knowledge of the matter said.

The private equity firm is seeking talks with Darmstadt-based Software AG to discuss a potential combination with Bain portfolio company Rocket Software, said the people, who asked not to be identified because the information is private. Software AG confirmed in filings that Bain has built a stake.

Software AG and Rocket Software both provide technology solutions to large companies, an area of the market that’s remained relatively robust amid a downturn in the overall technology industry.

On April 21, the buyout firm Silver Lake Management agreed to acquire Software AG for €30 a share in cash, valuing it at about €2.2 billion ($2.4 billion). Shares of the company have recently been trading above the offer price as investors bet on the possibility of a bump or counteroffer.

To win over Software AG’s stakeholders, a counter-bidder would likely have to offer more than Silver Lake and pitch the combination as a better strategic fit. Any challenge could become harder after Silver Lake announced moves on Friday to solidify its head start in the potential takeover battle.

Read more: Silver Lake to Acquire Germany’s Software AG for €30 a Share

Bain’s deliberations are at an early stage and may not lead to a formal offer, the people said. Representatives for Bain and Software AG declined to comment.

The firm built its stake over the past week, according to Software AG filings published on Saturday in Germany. Bain held a 10% interest in the company via shares and instruments on Thursday, the most recent figures available, after having no reportable stake just days earlier, the filings show.

Bain agreed to buy a majority stake in Rocket Software in 2018. The company, based in the Boston area, sells hybrid cloud solutions, computing infrastructure software and other tools for large enterprises. Last month, Rocket Software announced the acquisition of Key Resources Inc. to expand its mainframe security offerings.

Read more: Elliott Said to Build Software AG Stake in Bet on Takeover

Any move by another suitor faces the hurdle that Silver Lake has an agreement to buy 25.1% from the Software AG Foundation and management backing for its offer, which was at more than a 50% premium to the last close before it was announced. Silver Lake said in a statement Friday that the foundation can’t withdraw from the agreement or sell to anyone else, and Silver Lake’s tender offer doesn’t need to succeed for it to buy the stake.

Silver Lake also said it’s bought an additional 5% stake in the market, meaning it’s now locked in 30% of the company.

The private equity firm has secured binding debt financing commitments and plans to delist Software AG as soon as practically possible, according to Friday’s statement. It also said it won’t seek a so-called domination agreement, leaving less room for hedge funds to hold out and try to force a higher bid.

(Updates with Software confirmation, stake from second paragraph.)

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