Waterloo tech darling Magnet Forensics offered to Thoma Bravo in $1.8-billion deal

U.S. personal fairness big Thoma Bravo has agreed to purchase cybercrime software program maker Magnet Forensics MAGT-T, a darling of Canada’s know-how scene, for $1.8-billion and can merge it with one other firm it owns.

Thoma Bravo mentioned Friday it can pay $44.25 per share to holders of subordinate voting inventory in Waterloo, Ont.-based Magnet, which sells digital investigation software program utilized by legislation enforcement companies and firms to research cybercrimes. That may be a 15.4-per-cent premium to closing value Thursday.

It would additionally pay $39 a share to the three holders of Magnet’s a number of voting shares: co-founders Adam Belsher and Jad Saliba, and chairman Jim Balsillie. The trio, who personal 28.9 million supervoting shares and maintain 95-per-cent voting management, agreed to the lower cost on the behest of a particular board committee that pushed to profit subordinate shareholders. The trio will roll 55 per cent of their shares into inventory of the acquired agency.

Magnet’s board and controlling shareholders have unanimously agreed to the deal, which is topic to a $50-million break price payable by the Canadian firm to the customer and $70-million in reverse from Thoma if both terminates the deal. Holders of each share courses should approve the deal in a vote to be held in March.

As soon as the takeover is full, Thoma will mix Magnet with Grayshift LLC of Atlanta, which it purchased in 2022. That may convey collectively two frequent companions which have complementary capabilities: Whereas Magnet predominantly offers search instruments for computer systems and digital workflows, Grayshift’s power is in extracting information from cell units. The mixture will create a extra formidable rival to Israel’s Cellebrite Cellular Synchronization Ltd.

The deal is a special consequence from what Magnet had initially sought: Magnet was a number one bidder to purchase Grayshift final yr, however was outbid by Thoma, mentioned a supply conversant in the scenario. Inside three months after that takeover closed final June, the successful and shedding bidders have been in talks to create what the supply described as a category-killer in digital forensics and cybersecurity. The Globe and Mail will not be figuring out the supply as they don’t seem to be licensed to debate the matter.

Mr. Belsher mentioned in a media launch that the mixture “will unlock super worth for our clients by additional integrating and increasing our product suite, which can end in extra seamless workflows within the restoration and evaluation of crucial digital proof to investigations and in the end contribute to our shared mission of the pursuit of justice.”

Mr. Belsher shall be CEO of the mixed firm and the deal ensures government positions for Mr. Saliba, Magnet’s chief know-how officer, and Grayshift founders David Miles and Braden Thomas, plus a board seat for Mr. Balsillie. The supply mentioned the mixed firm, to be domiciled within the U.S., will most likely make acquisitions and certain go public once more as soon as market situations enhance.

The supply is under inventory value estimates from some analysts, which have singled Magnet out as a high Canadian tech choose. Nationwide Financial institution Monetary analyst John Shao has a $50-per-share goal. Mr. Shao mentioned in an e-mail whereas he initially anticipated a better supply, “for the administration who’re additionally the main shareholders and can stay at key positions on the new firm, the premium is certainly vital however the quick lane to achieve that market management is definitely engaging.”

Magnet has emerged as one of many main tech firms within the Waterloo space because the decline of BlackBerry Ltd., and its senior ranks are closely populated by its former executives, together with Mr. Belsher and Mr. Balsillie, who co-led the smartphone pioneer in its heyday.

Mr. Belsher cofounded Magnet in 2010 with Mr. Saliba, a former Waterloo police officer. They began by promoting software program to legislation enforcement companies who used it to research instances of human trafficking, youngster sexual exploitation and different crimes. Magnet later expanded into company cybercrime investigations, signing Chevron Corp. and Financial institution of America Corp. and others as shoppers.

Magnet gained a following amongst shareholders after going public in spring 2021 for not solely posting robust income progress but additionally turning a revenue, in contrast to many tech firms. Magnet earned internet revenue of $1.4-million within the third quarter ended Sept. 30 whereas income of $25-million was up 41 per cent yr over yr.

Magnet went public throughout an unprecedented growth for brand spanking new tech points on the TSX from summer season 2020 by means of the tip of 2021 as demand for digital firms soared through the pandemic. Magnet raised $115-million in its preliminary public providing – the primary for a Waterloo firm on the TSX in 15 years – which closed in Could, 2021.

The market has shifted dramatically since: Valuations for tech firms cratered over mounting financial considerations and rising inflation and rates of interest. Magnet was no exception: Thoma’s supply is nicely under Magnet’s all-time excessive inventory value of $65.80 in August, 2021. However Magnet additionally held up higher than most different Canadian tech firms because of its robust monetary efficiency, buying and selling at greater than double its $17 IPO value this week.

The takeover is a component of a bigger pattern afoot within the tech sector. With tech firms buying and selling at multiyear lows, flush personal fairness companies together with Thoma – one of many world’s largest with US$120-billion underneath administration – have been actively pursuing buyouts. Offers have been comparatively gradual to materialize as there stays a spot between what consumers are keen to pay and managers and boards suppose their firms they’re value. If troubling financial situations persist, many tech firms are anticipated to relent this yr.

Morgan Stanley suggested Magnet’s particular committee on the deal and CIBC Capital Markets supplied it with an unbiased valuation. Legislation agency Blake, Cassels & Graydon suggested Magnet whereas Dentons Canada suggested the particular committee. Kirkland & Ellis and McMillan supplied authorized recommendation to Thoma.