£6bn Darktrace takeover collapses after US buyers walk away
A £6bn deal to buy cybersecurity company Darktrace has collapsed after US private equity buyers walked away.
The buyout fell through hours before the Cambridge-based business said that millions of pounds in revenue had been wrongly recognised in this year's accounts instead of last year's.
Last night, US private equity firm Thoma Bravo pulled out of talks to acquire Darktrace, saying “an agreement could not be reached on the terms of a firm offer”. It came after three weeks of talks which sources had speculated would involve an all-cash transaction.
On Thursday, Darktrace made a £3.3m accounts restatement. It also reported sales of $415m (£360m) and net profits of $1.4m (£1.2m). Revenues were up 45pc on last year's restated results, while sales and marketing made up $232.8m of its $358m operating costs.
Darktrace cofounder Mike Lynch's previous company Autonomy was sold to Hewlett Packard in 2011 for $11bn, only for HP to write down its value by $8.8bn the following year and accuse Lynch of fraud.
Darktrace chief executive Poppy Gustafsson told analysts on Thursday that Thoma Bravo was not aware of the accounts restatement before cancelling the potential buyout on Wednesday evening. The private equity fund had until September 12 to confirm the purchase or walk away.
David Reynolds, an analyst from Davy Research, described the accounting restatement as “an oversight”, adding that it is “probably not a positive in terms of investor confidence”.
Mrs Gustafsson continued in Thursday’s results call: “We have a proven business model, which is generating cash. Today’s results are yet another example of our strong performance. Being listed on the London Stock Exchange is exactly where we want to be right now”.
In a statement to investors the company said: “Darktrace has determined that $3.8m of revenue it had been recognising in [financial year] 2022, including a portion recognised and reported in its unaudited [first half of] 2022 results, was related to prior periods and should instead be recognised in FY 2021.”
Darktrace’s share price crashed when markets opened on Thursday, plunging 30pc in the first 20 minutes of trading. The August news of Thoma Bravo’s interest had it soaring by 25pc and breaking the £5 mark. The stock closed at £5.04 on Wednesday but was down to £3.46 at midday on Thursday, below the level expected by JP Morgan Cazenove analysts.
CCS Insight research director Bola Rotibi said: “If one looks at some of the commentary surrounding both the deal and Darktrace, there are critics who felt that the company had been overstating its addressable client base which may have been more of an issue under closer scrutiny.”
Thoma Bravo declined to comment.
Tech industry sources have previously complained of Darktrace’s high pressure sales operation, described by some as “pushy” even when compared with market rivals in the highly competitive world of cyber security.
Market analyst Michael Hewson of CMC Capital Markets told the Telegraph: "With the shares already well below their post IPO peaks of last year there is a sizeable split amongst investors as to whether the company can live up to expectations of future customer and recurring revenue growth.
"This means that today’s full year results will likely get lost in the noise of this morning's announcement."
Earlier this year, the High Court ruled Mr Lynch together with Autonomy’s accounting chief had committed fraud. Mr Lynch intends to appeal. He is also contesting criminal charges in the US and an extradition attempt from American prosecutors.
