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Open Solutions Finds an Exit

Private investment firms The Carlyle Group and Providence Equity Partners will acquire Open Solutions for $1.3 billion pending shareholder approval.

But if recent trends are any indication, the company will not stay private for very long.

Shareholders of the identity management solutions vendor are due to receive $38 per share under terms of the agreement, which is expected to close during the first quarter of 2007.

Louis Hernandez, Jr., chairman and CEO of Open Solutions, said in a statement that the transaction will deliver excellent value to shareholders while enabling the vendor to "enter the next stage in our history of continually striving to provide innovative and enabling technology solutions and services to our clients."

The stock closed at $30.28 on Friday, giving shareholders a tidy 25 percent premium if they agree to tender their shares at that price.

A growing number of public technology companies are being taken private, giving them an opportunity to get their houses in order before getting back into the market, either through an IPO or a buyout by a public company.

According to data from research firm Dealogic, 16 public technology companies went private in 2005 and another 12 have done the same this year.

That's more than the total number of such deals over the previous seven years combined.

Moreover, the value of those transactions has skyrocketed.

Even with four fewer such deals so far this year, the aggregate dollar value of public-to-private transactions has already streaked past last year's total, from $17.7 billion to $22.5 billion, surpassing it by 27 percent to date.

In the last few months alone, Freescale Semiconductor was purchased by the Blackstone Group in September, and security device maker WatchGuard was bought by Francisco Partners in July.

But don't expect these firms to stay in private hands forever.

Private investment firms are gobbling up companies they see as undervalued, gussying them up and then spinning them back out to the market or a public company.

The Carlyle Group itself has sold five technology properties in the last two years alone.

The market is craving these kinds of properties.

Indeed, large public companies such as IBM , BMC , and HP  have made it clear that they intend to acquire companies that fill holes in their product portfolios.

In one such example, software vendor CA  acquired application management vendor Wily Technology, which was privately held at the time.

According to Richard Ptak, private equity firms try to identify firms that are undervalued and either have a strategically important product, dominate a market segment or have a set of customers they think will be attractive.

"They're trying to anticipate where that money that's sloshing around is going to go next," Ptak told internetnews.com.