Sandvine accepts $562M takeover

Call for review by federal regulators as Waterloo tech company sells to affiliate of U.S. spyware specialists

WATERLOO — Sandvine Corporation will be purchased by San Francisco investors associated with software sales that have helped oppressive governments target dissidents, journalists and human rights activists, if the deal is approved by shareholders.

Sandvine announced Monday it has a deal to sell all issued and outstanding common shares to PNI Canada Acquireco Corp. — an affiliate of Francisco Partners and Procera Networks Inc. That deal would see PNI pay $4.40 per share for Sandvine, which is about 40 per cent higher than $3.15, the closing price on May 26, valuing the company at $562 million.

The offer tops a previous one from another San Francisco-based company, Vector Capital.

Sandvine’s special meeting of shareholders, originally scheduled for Tuesday, has been postponed. The meeting — where shareholders will be asked to approve this offer from PNI Canada — will now likely be held in August, although no date has been set.

It is exactly the kind of deal that needs to be reviewed by federal regulators, said Ron Deibert, the director of the Citizen Lab at the University of Toronto’s Munk School of Global Affairs.

“Regardless of whatever sale is going on, that type of technology requires some sort of due diligence,” said Deibert.

Under terms of the proposed deal, Sandvine and Procera Networks would be combined, and be led by Procera’s chief executive officer Lyndon Cantor and Procera’s chief financial officer Richard Deggs. Sandvine would retain its name, however.

Francisco Partners, a San Francisco-

based private equity firm, acquired Procera Networks in 2015.

Later, several Procera employees resigned after learning the company sold technology to the Turkey’s national telecommunications company that enabled the authoritarian government there to spy on its own citizens.

Francisco Partners also controls the Israeli Cyber warfare company the NSO Group. It has spyware known as Pegasus that was sold to the Mexican government, and used against journalists, anti-corruption activists, human rights advocates, politicians and health scientists.

“Francisco Partners has a track record that we know about,” said Deibert.

Sandvine, which was founded in 2001, develops hardware and software to manage networks.

It has expertise in what’s called deep-packet inspection, a classic example of dual-use technology, Deibert said.

“It can be used for perfectly benign, actually very positive benefit. Like quality-of-service management of network traffic,” said Deibert.

“But it can also be used to engage in mass and targeted surveillance of various sorts, to throttle network traffic, to slow down certain types of software applications like encrypted chat messages, or it can be used to block access to content — censor in other words,” said Deibert.

Neither Sandvine nor Francisco Partners responded to requests for interviews.

On May 26 Sandvine announced it had a deal with Vector Capital for $3.80 a share.

On June 27, Sandvine announced a deal with Francisco Partners for $4.15 a share.

Vector Capital came back with another offer, which was again bested by PNI Canada Acquireco Corp., an affiliate of Francisco Partners and Procera Networks Inc., for $4.40 a share.

“This is a very exciting next step for Sandvine and Procera,” said Dave Caputo, Sandvine’s president and chief executive officer in a statement.

Caputo will join the board of directors of the combined company as non-executive chair.

“As technologies and networks continue to evolve, I firmly believe that the combination of Sandvine and Procera creates the premier provider in our markets — with the scale and innovation needed to address our customers’ opportunities to build more intelligent networks,” said Caputo in the statement.