Private equity suits at Thoma Bravo pull out of Darktrace acquisition

'Enterprise immune system' sees share price slump

US private equity investor Thoma Bravo has pulled out of its planned takeover of Darktrace, causing shares in the UK cybersecurity company to plummet.

London-based Darktrace revealed it was in early discussions with Thoma Bravo about a possible takeover last month, but confirmed on Thursday "an agreement could not be reached on the terms of a firm offer.

"The Board of Darktrace confirms that discussions with Thoma Bravo have terminated," it told the London Stock Exchange.

However, the San Francisco-based private equity firm said it may make another bid for the UK security software firm over the next six months.

Darktrace – shares of which are down more than 30 percent today on this takeover news – also reported 46 percent year-on-year revenue growth, reaching $415.5 million in its fiscal 2022, ended June 30. It posted a $1.46 million profit, compared with a $146 million loss last year.

The company also restated its revenue. According to the results, Darktrace determined $3.8 million in revenue recognized in FY 2022 was related to prior periods and should instead be recognized in FY 2021.

"This re-allocation is reducing revenue reported in FY 2022 to $415.5 million from the $419.3 million that would otherwise have been expected," the results said [PDF].

On an investor call, however, Darktrace said the net impact of the accounting restatement was negligible.

CFO Cathy Graham said: "We didn't find any differences in total revenue across these contracts, so this adjustment was made solely to correct the timing of revenue recognition and ensure proper revenue recognition going forward. Further, this adjustment has no impact on ARR or its related measures, cash position, or the U.S dollar value of Darktrace's FY 23 guidance."

In any case, observers have suggested other reasons behind Thoma Bravo's decision to pull out.

"For investors with long memories, this is par for the course – and they will remember that Micro Focus had the same thing happen a number of years ago. The only rational explanation is that Thoma walked away because they couldn't get to the price that they wanted," Goodbody analyst George O'Connor said in a client note.

In April 2021, Darktrace enjoyed a bumper IPO climbing 40 percent on its London Stock Exchange debut after an opening valuation of £1.7bn.

Darktrace has built something it calls an "enterprise immune system," which it says uses machine learning to identify and respond to security threats and incidents across cloud, IoT, virtualized networks, and industrial control systems.

Darktrace is backed in part by Mike Lynch, the former Autonomy CEO who is in the process of being extradited to America. There he is set to face criminal charges over the sale of Autonomy to Hewlett-Packard in 2011 for $11 billion.

In 2016, Darktrace pulled in $65 million in VC funding following a 2015 investment of $22.5m.

The Cambridge-based business was founded in 2013 by former Autonomy exec Poppy Gustafsson, now CEO, and members of the intelligence agencies. It counts one-time GCHQ deputy head of cyber defence Andrew France and ex-MI5 director-general Sir Jonathan Evans as board members.

The collapse of the Darktrace private equity sale adds the outfit to a list of companies concerning for those interested in the UK tech market's wellbeing. Canadian software company OpenText is buying Micro Focus in a deal worth around $6 billion; software company NortonLifeLock purchased Avast; and France's Schneider Electric is said to be interested in industrial software developer Aveva Group.

The weakness of the UK's currency combined with the impact of Brexit are said to be behind the international shopping spree. ®

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