UK cybersecurity pioneer Darktrace could be set for a takeover after it confirmed talks with Thoma Bravo, a private equity fund specialising in software. Darktrace was hailed as a leading light in the UK tech ecosystem when it floated on the London stock market last year, and any move to delist it would be a blow to Britain’s ambitions as a global tech hub.
The company said late on Monday that it was “in the early stages of discussions with Thoma Bravo” regarding a possible takeover. “Discussions are at a preliminary stage and there can be no certainty that any offer will be made, nor as to the terms of any such offer,” a notice to shareholders said. Under stock market rules, Thoma Bravo now has an “offer period” until September 12 during which it can make a firm bid for Darktrace.
Darktrace's share price surged on Tuesday morning after the talks came to light, and the company now has a valuation of £3.28bn. However, this is still someway short of its peak valuation last September.
What is Darktrace?
Founded in 2013 based on ideas developed at the University of Cambridge, Darktrace uses unsupervised AI to map its customers’ systems and build up a picture of normal behaviour within those systems, which evolves over time as the company changes. This then allows its software, which it calls the Enterprise Immune System, to spot anomalies and detect and respond to cyberattacks as they happen. The company claims it was able to respond to the 2017 WannaCry attack on the NHS "within seconds" and says this “protected customer networks from inestimable damage”.
Darktrace says it has more than 7,400 customers around the world, and the company enjoys close ties to the security services, with several of its founders having previously worked at GCHQ. CEO Poppy Gustafsson has served as an advisor to the government on cybersecurity matters, and Prime Minister Boris Johnson was reported to have personally intervened to convince the company's founders to list on the London Stock Exchange last year, rather than in New York or elsewhere.
It expects to report revenue of $417m for the 2022 financial year, according to its latest trading update, a year-on-year increase of 48%.
The company's rise to prominence has not been without controversy thanks to the involvement of Mike Lynch, the British tech entrepreneur who has been a driving force behind Darktrace and remains a major investor. Lynch stepped down as an advisor to Darktrace earlier this year as he fights allegations of fraud relating to the 2011 takeover of his company, Autonomy, by HPE. In January it was announced Lynch had lost a long-running court case with HPE and could be made to pay damages running into the millions or billions of dollars. At the same time, Home Secretary Priti Patel announced that Lynch could be extradited to the US to face criminal charges relating to the Autonomy takeover. Lynch denies any wrongdoing and is appealing both decisions.
Does a takeover of Darktrace make sense?
Darktrace employs over 2,000 people and is jointly headquartered in Cambridge and San Francisco, where Thoma Bravo is based. Any move to delist the company would be a blow to the London Stock Exchange, which has struggled to attract tech listings in recent months, with companies such as UK chip designer Arm favouring New York due to the higher levels of capital available in the US.
While any takeover by Thoma Bravo would see Darktrace initially continue as an independent company, experts believe it could be a target for the bigger players in the market.
Speaking to Tech Monitor last year, Joel Stradling, research director for European security at IDC, said that while the company's technology was initially novel, other vendors have narrowed the gap. "Its system is sophisticated and it has a compelling message, but it’s becoming increasingly difficult for the company to differentiate based on that," Stradling said.
Because of this, he believes it could end up being an acquisition target for a Big Tech business. “Companies like Microsoft and Google have come a long way with their own security offerings, and obviously have a much bigger scale than Darktrace has,” he said. "I would see Darktrace as a company that might get swept up by one of the bigger guys."
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