Darktrace’s takeover talks with private equity firm Thoma Bravo breaks down

Sep 8, 2022 | News | 0 comments

Shares in Darktrace have tumbled after the cybersecurity provider revealed that takeover negotiations with American investment group Thoma Bravo have ended.

Discussions between the pair were first revealed last month, sparking significant concerns that the London Stock Exchange would lose another technology business to a private equity predator.

Following that announcement, Thoma Bravo, a specialist investor in the tech industry, was given until next Monday to make a concrete proposal or walk away.

Under City takeover rules, it must now wait at least six months before putting forward another offer unless another company reveals a rival bid for Darktrace.

‘Early stage discussions took place with Thoma Bravo about a possible offer for the company, but an agreement could not be reached on the terms of a firm offer,’ Darktrace told investors.

Darktrace shares were the biggest faller by some distance on the FTSE 350 Index on Thursday, diving by 34.5 per cent to 337.1p, meaning their value has declined by over half in the past 12 months.

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This was despite the Cambridge-based group reporting impressive annual results showing it rebounding to a modest profit on the back of strong revenue growth across all markets.

The firm posted a net profit of $1.5million in the 12 months to the end of June, compared to a $145.8million loss the previous year when it incurred heavy finance costs associated with debt securities that were handed to certain investors.

Profitability was buoyed by operating expenses growing more modestly than they usually would due to Covid-related restrictions suppressing spending on travel, entertainment and facilities for much of the period.

But earnings mainly benefited from total revenues jumping by 45.7 per cent to $415.5million thanks to Darktrace’s customer base expanding by around a third.

Darktrace uses artificial intelligence to design software that helps protect organisations against cyber threats ranging from ransomware, email phishing and software-as-a-service attacks.

Its clients have included brewing giant and Budweiser producer ABInBev, Formula One team McLaren Racing, and civil engineer Sir Robert McAlpine, as well as the UK intelligence services.

One of its most well-known backers has been Mike Lynch, who is facing possible extradition to the US over accusations of fraud arising from the $11.6billion sale of enterprise software group Autonomy to HP.

Lynch, who has denied all allegations of wrongdoing, has said that a ‘vindictive’ campaign by US authorities has depressed the share price of Darktrace, thereby making it more vulnerable to a takeover.

Darktrace shares have undergone massive turbulence since floating last year, initially surging to over £10 before slumping in November 2021 after Peel Hunt released an analyst note claiming the firm was massively overvalued.

Michael Hewson, the chief market analyst at CMC Markets UK, said the breakdown of talks between Darktrace and Thoma Bravo is a ‘mixed blessing’ for London’s financial markets.

He added: ‘On the one hand, it [Darktrace] has been touted as an award-winning pioneer in the cyber-security space, a sector that is more important than ever in these testing times and the Russian invasion of Ukraine.

‘On the flip side, there are questions about its links with Autonomy owner Mike Lynch with some investors questioning how deep these links go.

‘There have also been questions about the amount of money the company spends on R&D, which it is being argued is too low for such an important sector.’

Source: This Is Money

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