Smart Modular to Be Acquired by Silver Lake

SMART Modular Technologies (WWH), Inc. has entered into a definitive agreement to be acquired by Silver Lake Partners and Silver Lake Sumeru for $9.25 per share in cash. The transaction is valued at approximately $645 million. The offer price represents a 23% premium over the average closing price for the previous 30 trading days and a 46% premium over the average closing price for the previous 52-week period.

"After thoroughly evaluating a full range of strategic alternatives, the Special Committee of the SMART Board concluded that this transaction is fair to and in the best interests of the Company’s shareholders," said Kimberly Alexy, Chair of the Special Committee. "The Special Committee unanimously recommended this transaction to the SMART Board, which approved the transaction based on the Special Committee’s recommendation."

"As a private company, we believe we will have greater flexibility to deliver to our customers the benefits of our long term strategies, while managing the volatility of the DRAM cycles that have and will continue to be part of our business model," said Iain MacKenzie, President and CEO of Smart Modular. "As a partner with strong technology expertise, Silver Lake will be committed to supporting our ability to grow our business around the world and provide long-term opportunities for our employees, customers and broader industry."

"SMART has a significant history of success. We are very pleased to have an opportunity to work with SMART’s management team to develop this business going forward in existing and new directions," said Ken Hao, a Managing Director of Silver Lake Partners. "We expect to maintain continuity in SMART’s business approach and strategies, customer service and support and employee base. Silver Lake, the global leader in private investments in technology and technology-enabled industries, has a strong track record of assisting management teams to develop their business plans to their fullest potential."

Under the terms of the agreement, SMART’s shareholders will receive $9.25 in cash for each share of SMART common stock they own. The completion of the transaction is subject to customary closing conditions, including receipt of shareholder and regulatory approval. The closing of the transaction is expected to occur in the third calendar quarter of 2011.

Barclays Capital is serving as financial advisor to SMART and provided a fairness opinion in connection with the transaction to the Special Committee of the SMART Board. Kaye Scholer LLP serves as legal adviser to the Special Committee and Davis Polk & Wardwell LLP serves as legal counsel to SMART in connection with this transaction. Simpson Thatcher & Bartlett LLP serves as legal advisor to Silver Lake for this transaction. Debt financing commitments have been provided by J.P. Morgan and UBS Investment Bank and certain of their affiliates.

The definitive merger agreement permits the Special Committee to solicit, receive, evaluate and enter into negotiations with respect to alternative proposals through June 9, 2011. The Special Committee, with the assistance of its independent advisors, will actively solicit alternative proposals during this period. There can be no assurance that this process will result in a superior offer. The Special Committee does not intend to disclose developments with respect to the solicitation process unless and until the Special Committee and the Board make a determination requiring further disclosure.

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Silver Lake is a private investment firm founded in 1999 with approximately $14 billion in assets specialized in acquiring public company and later putting them on the stock market at - of course - higher price. It did it in 2000 with Seagate. It also tried to get Hitachi GST recently and become a major equity partner in Spansion through Silver Lake Sumeru being in the same financial group.

Based in Newark, CA, public firm Smart Modular Technologies - that was formerly a wholly-owned operating company within the Technology Solutions Business Unit of Solectron - is a new good fish for Silver Lake as it is in a promising market, SSDs, with revenues exploding after losing a lot of money but now slightly profitable.

For its fiscal year ending last December, it recorded sales of $703 million increasing 59% with $53 million in net loss. For 1Q10, revenues were up yearly 76% at $216 million and the firm was profitable ($8 million). For the current quarter, Smart expects net sales in the range of $165 to $185 million and gross profit from $31 to $34 million.

In 2008, Smart was really in bad shape and decided a big restructuration in September by eliminating 320 positions, or about 19% percent of global workforce, exiting China and India ops, and closing of Dominican Republic facility.

It needed a new business model to move away progressively from DRAM/SRAM marlet where the prices deeply diminished, embedded computing subsystems and TFT-LCD display products. The firm, already in flash devices since 2001 with the help of Micron, but remaining a small player, acquired specialist Adtron in 2008 for around $35 million. Now some of its known OEMs in enterprise SSDs include Harris, Xiotech and a big one, IBM.

To push its new offering, Smart recruited in 2010 two new executives coming from Seagate on its storage business unit:

Bernie Rub as VP and CTO who served as technologist at Seagate and senior member of technical staff/fellow at Maxtor; he began his career at DEC/Quantum.

John Scaramuzzo as senior VP and GM, most recently senior VP and GM of Seagate's enterprise compute business unit; he was previously executive VP WW product development and research, senior VP and GM of the enterprise products division at Maxtor after holding several leadership positions at Quantum and DEC.