Thoma Bravo considers taking Darktrace private

Thoma Bravo, a US-based technology private equity group, is considering a bid to privatise Darktrace, a cyber security technology company advised by former Autonomy head Mike Lynch.

Thoma Bravo has begun discussions on a cash takeover offer for Darktrace, the UK-based company said in a regulatory disclosure. It has a market capitalisation of £2.67bn.

The private equity group will have until September 12 to either make a formal offer or abandon the takeover effort. Darktrace is being advised by investment banks Jefferies and Lazard, the company said. Darktrace shares rose 17 per cent in Monday afternoon trading in New York.

The share price of Darktrace, which provides AI-based cyber security that it says can protect against serious threats such as ransomware and cloud attacks, rose by more than 40 per cent after Russia invaded Ukraine and fears of global cyberwarfare proliferated.

Darktrace has ties with Mike Lynch, the British software entrepreneur who has been charged with 14 counts of conspiracy and fraud linked to the $11.6bn sale of his former company, Autonomy, to Hewlett-Packard in 2011.

In January, the UK home secretary Priti Patel approved the extradition of Lynch to the US after months of legal wrangling that ended with the High Court in London rejecting an attempt by his lawyers to win more time to consider the order.

Lynch, who has strongly denied any wrongdoing over the Autonomy deal, helped to create Darktrace in 2013. Filings show that Invoke, which has funded several UK tech start-ups since it was founded in 2012, then financed Darktrace’s first two years of operations. Lynch stepped down as a director of Darktrace in 2018, but continued to serve on the company’s advisory council until 2021. In the year ending June 2020, Darktrace paid Invoke more than $3mn, on top of $2mn paid in the two previous years.

The cyber security company floated on the London Stock Exchange in April last year. In the following six months its share price nearly tripled, from 333p at IPO to 945p in October.

The stock plummeted, however, after a sell note by the corporate broker Peel Hunt claimed that the company was only worth half its value. The note added that the broker believed a gulf lay between its marketing and what it could offer.

Darktrace entered the FTSE 100 index in October but returned to the FTSE 250 two months later.

Thoma Bravo, with $114bn in assets, is one of the world’s most active investors in cyber security companies, with a specialised set of dealmakers targeting the sector.

Cybersecurity deals have been a bright spot in an otherwise challenged dealmaking environment for technology companies. Lenders to such deals remain willing to finance privatisations of cyber security companies because of their perceived resilience to broader economic issues, sources have told the Financial Times.

Last year, Thoma Bravo took the email security company Proofpoint private for $12.3bn, in one of the year’s largest technology takeovers. It has remained an active buyer this year, even though the broader technology has sold off sharply. Earlier this year, it agreed to privatise SailPoint Technologies for $6.9bn and Ping Identity for $2.8bn.

Private equity buyers such as Thoma Bravo and its competitor Vista Equity have also begun targeting UK-based technology companies, which trade at lower multiples than their US counterparts.

Thoma Bravo’s recent takeovers in the US come at multiples of more than 10 times trailing 12-month sales, while Darktrace currently trades below such valuation multiples.

Last year, Vista bid on Blue Prism, a robotics automation software company, before dropping out of the takeover effort. Blue Prism was acquired by US-based software group SS&C Technologies for £1.25bn, or around seven times its 2021 turnover.