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Cybersecurity Firm Darktrace Drop 30% As Takeover Deal With Thoma Bravo Collapse

By The Tokenist (Shane Neagle)CryptocurrencySep 08, 2022 01:21PM ET
www.investing.com/analysis/cybersecurity-firm-darktrace-drop-30-as-takeover-deal-with-thoma-bravo-collapse-200629572
Cybersecurity Firm Darktrace Drop 30% As Takeover Deal With Thoma Bravo Collapse
By The Tokenist (Shane Neagle)   |  Sep 08, 2022 01:21PM ET
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Darktrace (LON:DARK) fell more than 30% in London on Thursday after the cybersecurity company said talks with the private equity firm Thoma Bravo collapsed.

Thoma Bravo, a major private equity business that has more than $110 billion in assets under management, announced Thursday morning that it does not intend to make an offer for Darktrace, which had a market cap of around 3.5 billion pounds based on yesterday’s closing price.

Darktrace confirmed that discussions, which were first disclosed Aug. 15, “have terminated.” The cybersecurity business added that it could not reach an agreement with Thoma Bravo “on the terms of a firm offer,” which prompted the private equity firm to walk away.

“The board continues to be very confident in the company's future prospects as demonstrated by its FY22 results released today."

Clear M&A Focus On Cybersecurity

Thoma Bravo didn’t say why it decided not to pursue its early interest in Darktrace. It is likely that the two sides couldn’t agree on the price in a very difficult macro environment. However, another reason may be that Thoma Bravo didn’t like certain fundamental aspects of the business after taking a closer look at the company’s books.

“It now begs the question whether the bid-ask spread was too wide to breach or whether there was something more sinister behind the curtain,” Olivetree analysts said in a note.

“There will probably not have been enough time for Thoma Bravo to have taken a good look at the books, but we find it a little odd that the PE fund did not wait to at least see today’s results release,” they added.

If Thoma Bravo managed to secure the deal to acquire Darktrace, it would become the sixth business acquired by the private equity firm in 2022. The U.S.-based investing giant has used a selloff in the stock market to go on a shopping spree, with over $20 billion spent on tech companies Anaplan (NYSE:PLAN) ($10.7 billion), SailPoint ($6.9 billion), and Ping Identity ($2.8 billion).

When in April Thoma Bravo announced it will acquire enterprise identity security business SailPoint, the private equity firm spoke extensively about its ability to help growing software brands further develop in industry-leading powerhouses.

“Thoma Bravo’s operational and financial resources combined with SailPoint’s focus on driving consistent innovation that delivers sustained customer success will set SailPoint on a path for sustained long-term growth,” two companies said in a statement.

Hence, while the Darktrace pursuit seems to be over, it is very possible that Thoma Bravo will look to deploy its financial muscles in other parts of the cybersecurity market, which seems to be its favorite theme.

Mixed Earnings Reported

In addition to the Thoma Bravo announcement, Darktrace also reported mixed full-year results. Revenue came in at $415.5 million, up 45.7% year-over-year, but missing the average analyst estimate by $1.1 million. Operating profit was reported at $7.6 million, again worse than the analyst estimate of $16.8 million.

The adjusted came in at $91.4 million, which is ahead of the consensus of $81.3 million. Darktrace reported its gross margin stood at 89.2%, which is below last year’s 89.9% and the estimate of 89.5%.

As far as the 2023 outlook is concerned, the cybersecurity company raised its revenue guidance so that now expects growth in the 30-33% range, compared to the prior 29-32%. The guidance for the adjusted Ebitda is reaffirmed at 15% to 18%.

“Operating expense growth largely remained below typical levels due to pandemic restrictions suppressing travel and entertainment, facilities and other costs for a significant portion of the year. These costs are expected to further return over FY 2023, but scale efficiencies continue to support expected long-term steady state margins,” the company said in a statement.

Although missed analyst estimates and failed takeovers are not a good sign, future forecasts still look promising. There’s little doubt about Darktrace’s ability to generate further growth, so the company’s stock should remain an appreciating asset for the foreseeable future.

Darktrace also noted that it mistakenly recognized $3.8 million of revenue in FY2022 which should have been recognized under FY2021 accounts.

Summary

Shares of Darktrace are down more than 30% in London after the company disclosed that the private equity firm Thoma Bravo opted against making a firm offer. While Thoma Bravo agreed to a few multi-billion-dollar deals to take high-growth software firms private earlier this year, it is likely that it couldn’t agree on the price to acquire Darktrace.

Cybersecurity Firm Darktrace Drop 30% As Takeover Deal With Thoma Bravo Collapse
 

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Cybersecurity Firm Darktrace Drop 30% As Takeover Deal With Thoma Bravo Collapse

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