Tech

Shira Ovide is a Bloomberg Gadfly columnist covering technology. She previously was a reporter for the Wall Street Journal.

Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

Let’s take a moment to honor BlackBerry.

Wow, those scroll-wheel BlackBerry devices were such a revelation in a pre-iPhone age. We loved them so much. Remember those stories about addicts getting “BlackBerry thumb?

OK, that was a nice trip down memory lane. Today, BlackBerry finally admitted what has been obvious for a long time: It shouldn’t make smartphones anymore. So now what?

BlackBerry in recent years has refocused on selling software to secure Android and other smartphones used by corporate workers. It’s a sensible strategy -- really the only strategy for a technology hardware company whose hardware business is effectively dead.

But now there’s really no reason for BlackBerry to stay a public company. Let’s explore three possible paths to the company's next life stage. BlackBerry will never be the bright shining tech star it was a decade ago, but it can still be a solid business -- or businesses, if it's broken into pieces -- in the right hands.

Private equity takeover: Here’s a fun fact you can break out at parties (well, really dull parties): When BlackBerry (then Research in Motion) hit its peak $83 billion market cap in June 2008, the company had the 29th-highest stock-market value in North America. The Waterloo, Ontario, company was worth more than Goldman Sachs, Comcast and Merck.

Today, at a shrunken $4 billion-plus market cap, BlackBerry is doable-deal-sized for private equity firms, which have been buying every software company they can find, even (especially?) the ugly ducklings.

BlackBerry certainly fits that mold. After an acquisition spree and strategy shift, BlackBerry no doubt has plenty of flab a savvy PE firm could trim to improve profits and juice its eventual returns. And any willing private equity firm might be able to turn to a Canadian pension moneybags, such as the CPP Investment Board , as a potential partner on a deal for the country's once-golden child. 

Blackberry's Black Hole
Blackberry's stock market value has declined 95% from its 2008 peak
Source: Bloomberg
Note: Figures are through Tuesday's market close.

But a transaction at a 30 percent premium implies an EV/Ebitda multiple of roughly 30 -- rich even for private equity firms that have splashed on other recent deals. A PE firm would be on the hook for an outsize equity check, partly because debt financing is limited to around 8 times Ebitda for certain technology deals. BlackBerry's declining free cash flow would also be a deterrent, as lenders would question the company's ability to support a hefty debt load. 

Rearview Mirror
BlackBerry's best days are behind it. The company's free cash flow has shrunk to a fraction of what it once was, which could prove a hurdle in a leveraged buyout
Source: Bloomberg

DIY, with help: Rather than buy BlackBerry outright, a private equity firm could inject it with capital that could be used to make revenue-boosting deals. BlackBerry said last November it planned to make more software acquisitions after its $425 million purchase of Good Technology. Rather than depleting its cash pile, the company could accept capital from a PE firm, which would also likely provide it with a new board member, who could help fix the company's underlying business while it remains publicly traded. That path isn't unheard-of: Silver Lake and Blackstone have seats at the table at once-unloved tech companies Symantec and NCR, respectively. 

Cash Rich
BlackBerry's cash pile could be used to partially fund any acquisitions or buy back additional shares
Source: Bloomberg

Sell to a bigger company: While the revamped BlackBerry wouldn't be impossible to swallow in its entirety, business-focused tech giants such as Hewlett Packard Enterprise and Cisco might blanch at the valuation, and prefer instead to buy select parts.

Those firms and others, such as Dell Technologies' VMware or Samsung, might want to buy BlackBerry's mobile-device management business, anchored by Good Technology, or BlackBerry's digital-security-related patents. Samsung or others might look at BlackBerry's once-market-leading QNX technology for auto electronics. And international phone carriers could be interested in BBM, the once-popular mobile messaging service still widely used in some countries such as Indonesia

Any new path for BlackBerry would have to win over Fairfax Financial Holdings, which made one of its typically contrarian bets on a BlackBerry turnaround.  None of these options are ideal for Fairfax or other BlackBerry backers, but there are no perfect paths for a company whose stock market value has cratered 95 percent from its peak.

And BlackBerry deserves a chance at a second act, for all those recovering CrackBerry addicts -- and for shareholders who have held on for the company's swan dive.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. CPPIB doesn't like being considered the financial Plan B for Canadian companies.

  2. The firm tried to take BlackBerry private several years ago.

To contact the authors of this story:
Shira Ovide in New York at sovide@bloomberg.net
Gillian Tan in New York at gtan129@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net