A Big Thoma-cquisition: Thoma Bravo takes UK cybersecurity firm private for £3.1 billion
November 7, 2019
3 min read
What's going on here?
The US private equity group Thoma Bravo has announced that it will acquire the Oxford based cybersecurity firm Sophos for £3.1 billion, a 37% premium on Sophos’ last closing price.
What does this mean?
Sophos is a cybersecurity firm that protects 100 million users, comprised largely of small and medium sized businesses. The firm went public in 2015 with a £1 billion valuation, with its share price doubling since its IPO. Now the San Francisco based private equity firm Thoma Bravo, which as of January 2019 managed over $30 billion in equity commitments, has bought the British tech company.
Chief executive of Sophos, Kris Hagerman, announced that Sophos will remain a standalone company to allow it to “continue to grow, expand and execute in its own markets”. Sophos is the most recent cybersecurity firm to be acquired by Thoma Bravo, as it joins its competitor Barracuda Networks, Imperva, Veracode and LogRhythm. It is reported that Thoma Bravo has taken an interest in other cybersecurity firms too such as Symantec’s Norton and McAfee antivirus software brands.
What's the big picture effect?
Due to the weakness of the pound and private equity firms’ popularity with institutional investors, many companies are falling into private hands. This means that the acquired firms are no longer available in public markets. This is a recent trend as highlighted by Slaughter and May’s corporate partner Robert Innes notes; “we’re seeing quite a lot of private equity money and a return to public-to-private in the last two years”. He adds that private equity companies see “value in UK stocks”, especially within the more consolidated tech sector.
Kirkland and Ellis advised Surf Buyer Limited, the arm of Thoma Bravo involved in this case, whilst Slaughter and May advised Sophos. Kirkland’s team included London merger and acquisition (M&A) partners David Holdsworth, David D’Souza and David Higgins as well as Chicago M&A and debt finance lawyers and London debt finance lawyers. Slaughter’s Corporate, Competition, Employment/share schemes and Tax departments were involved in advising Sophos.
Corporate lawyers structure deals in M&As. It is common for the acquirer to need to raise money (capital) to be able to acquire its target. This is called capital financing and lawyers are involved in the two primary methods of achieving this: raising debt or raising equity (shares). Often, both are used which means that the acquisition will be a “leveraged” acquisition.
In the early stages of a deal, lawyers are involved in drafting Term Sheets and Letters of Intent which lay out the proposed terms and conditions of a deal. These are then negotiated. Topics that will be discussed commonly include a negotiation of the acquisition price, how the newly acquired firm will be structured and what will happen to shareholders.
Whilst these negotiations are ongoing:
- employment lawyers will be looking at what this will mean for employees’ contracts;
- tax lawyers will consider how to make the deal tax efficient; and
- competition lawyers will ensure that the deal is not deemed anti-competitive and complies with competition regulation.
This is why Slaughter’s tax, employment and competition teams were needed on the deal. Only after these matters have been dealt with will the sales and purchase agreement be finalised.
These types of deals are likely to continue given the trend of private companies buying out their public competitors so we will no doubt be looking at more of these cases over the coming years.
Report written by Will Holmes
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