Sophos/Thoma Bravo: cable tie
US buyer’s offer is attractive and UK fears of losing local tech expertise are overdone
Europe has few local heroes in tech. So when a US buyer snaps up a homegrown success story, hand-wringing is guaranteed. Monday’s £3.1bn agreed bid for UK cyber security company Sophos by US private equity firm Thoma Bravo was no exception. It is a good deal, all the same.
Chicago-based Thoma Bravo is a savvy investor. It was the world’s best-performing buyout fund between 2005 and 2014, one study found. It has invested heavily in the cyber security industry over the past decade. In Sophos, it spotted a business with good prospects, on the cutting edge of next-generation products.
Thoma Bravo also saw a business it could snap up at a good price. That is not just because Brexit has tilted “cable” — the pound/dollar rate — advantageously. It is also because investors have been bruised by volatile earnings. In January, Sophos shares dropped 25 per cent in a day after its third profits outlook downgrade in five months. Before the shares jumped on Monday’s announcement, they were down 7 per cent over a year and 36 per cent since a January 2018 high.
The premium is attractive. Thoma Bravo’s 583p cash offer is 37 per cent above Friday’s price and 46 per cent above the average of the last six months. The £3.1bn enterprise value is 5.6 times the last 12 months’ sales. That is significantly ahead of the 4.5 times multiple paid by Broadcom for Symantec in August. It also beats the 3.8 turns paid by Thoma Bravo in its $1.6bn bid for security firm Barracuda last year. No wonder the Sophos offer has sparked hopes of more consolidation in the fragmented cyber security market.
Fears of losing local tech expertise are overdone. Thoma Bravo wants to use Sophos as a platform for further acquisitions. It intends to keep Sophos as a standalone business. There are no plans to move its headquarters out of Oxfordshire. Indeed, Sophos is already a global business, run by a US boss. Another cyber security specialist remains on the London market, Avast. While the market is subdued, there are more British tech IPO candidates waiting in the wings.
Sophos’s sojourn on the stock market should be counted as a success. Investors who bought the shares at 225p in the 2015 IPO have more than doubled their money. Sophos software is designed to protect against opportunistic predators. There is little sign it has let its guard down this time round.