Splunk announced that Silver Lake will make a $1 billion investment in convertible senior notes to support the continued transformation of its business.

Splunk expects to use the proceeds from the new investment to fund growth initiatives and manage its capital structure, including a newly authorized share repurchase program of up to $1 billion that will be executed over time.

“We’ve significantly evolved our business since we began our transformation to become a cloud-first company over two years ago, and today’s announcement reaffirms the strength of our business fundamentals, cloud strategy and high-growth trajectory,” said Doug Merritt, President and CEO of Splunk. “Silver Lake has a strong reputation and track record of investing in innovative technology companies, and with their support, we are accelerating toward our goals as we deliver the most scalable and powerful data platform in the cloud.”

Earlier this month, Splunk reported Cloud annual recurring revenue (ARR) of $877 million for the first fiscal quarter 2022, an increase of 83% year-over-year. Splunk finished its first quarter with 56% of its software bookings from Cloud and 203 customers with Cloud ARR greater than $1 million, up 99% year-over-year.

“We have long admired Splunk’s world-class team and technology, and we believe the company is now at an important inflection point,” said Kenneth Hao, Chairman and Managing Partner of Silver Lake. “It has become increasingly clear that a cloud-driven transformation is critical to modernization and Splunk is ideally positioned to help organizations throughout the world manage the complexity associated with this transition. We are confident in the opportunities ahead and eager to work with Doug and his team to support Splunk’s next phase of growth.”

In connection with Silver Lake’s investment, Hao will be appointed to Splunk’s Board of Directors. With Hao’s appointment, Splunk’s Board will comprise 11 members, 10 of whom are independent.

“Ken brings more than 30 years of experience in technology investing and working with management teams to build and grow great companies, and we are excited to welcome him to the Splunk Board,” said Graham Smith, Chair of the Splunk Board. “Through this partnership with Silver Lake, Splunk is well positioned to build on the momentum the team has generated and continue to enable customers to break barriers across IT, Security and DevOps while driving sustainable value for our stockholders.”

Terms of the Transaction and Share Repurchase Program: Under the terms of the investment, Silver Lake will purchase $1 billion in aggregate principal amount of Splunk’s convertible senior notes (the “Notes”). The Notes will have an initial conversion price of $160.00 per share of Splunk’s Common Stock, subject to customary anti-dilution and other adjustments. The initial conversion price of $160.00 represents a 30% premium to the volume-weighted average closing price of the Common Stock over a 10-day period ending on June 21, 2021. The Notes will mature in July 2026, unless earlier repurchased, redeemed or converted. The Notes will bear interest at 0.75% per year.

In connection with this transaction, Splunk’s Board has authorized the repurchase of up to $1 billion of its common shares in the open market, based on prevailing market prices, or in privately negotiated transactions. The repurchase is intended to offset the dilutive effect of the Notes.

Additional information regarding this announcement may be found in a Form 8-K that will be filed today with the U.S. Securities and Exchange Commission.

Advisors: Goldman Sachs & Co. LLC is acting as lead financial advisor and Centerview Partners is also acting as financial advisor to Splunk, and Wilson Sonsini Goodrich & Rosati and Wachtell, Lipton, Rosen & Katz are serving as Splunk’s legal advisors in the transaction.

Simpson Thacher & Bartlett is serving as legal advisor to Silver Lake.