Darktrace Shares Drop 33% After Takeover Talks Collapse

(Bloomberg) -- Shares of Darktrace Plc tumbled as much as 33% after US private equity firm Thoma Bravo said it did not intend to make a takeover offer for the cybersecurity firm.

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London-based Darktrace revealed it was in early discussions with Thoma Bravo about a possible takeover last month, but said on Thursday that “an agreement could not be reached on the terms of a firm offer.”

The fall has wiped £1.17 billion from Darktrace’s market value, with the company currently worth about £2.5 billion.

Thoma Bravo separately said it reserved the option to make a bid under certain circumstances over the next six months. The San Francisco-based firm, which focuses on software investments, said this week it would open an office in London.

Darktrace shares have been volatile in 2022, reaching a high of 511.5 pence in March before falling to 287.6 pence in July. They soared to a new year-to-date high after the takeover talks were disclosed in August -- gains erased on Thursday.

“For investors with long memories, this is par for the course -- and they will remember that Micro Focus had the same thing happen a number of years ago, Goodbody analyst George O’Connor said in a note to clients. “The only rational explanation is that Thoma walked away because they couldn’t get to the price that they wanted.”

Founded in 2013 by mathematicians and cyber defense experts, Darktrace uses artificial intelligence to check for hacks and suspicious data leaks. Its founding investor was Invoke Capital Partners, an investment firm created by embattled British entrepreneur Mike Lynch.

Read more: Lynch’s Legal Woes Barely Dent Loyalists’ $1.7 Billion Fortune

Any possible takeover talks would’ve likely involved questions about Darktrace’s historic links to Lynch, the former Autonomy Corp. founder who’s fighting criminal fraud charges related to the sale of that company to Hewlett-Packard in 2011. Lynch formed Invoke following the Autonomy sale.

Darktrace warned about potential risks arising from Lynch’s legal battles in the prospectus released ahead of its initial public offering last year.

Foreign buyers have been targeting UK tech firms recently. Canadian Open Text Corp.’s takeover offer for Micro Focus International Plc follows NortonLifeLock Inc.’s purchase of cybersecurity firm Avast Plc, and GTCR said Tuesday it’s considering a bid for identity verification and fraud prevention company GB Group Plc.

“I don’t think it really means much in terms of UK remaining an attractive market for PE buyers,” Ben Kelly, an analyst at Louis Capital Markets, said in an emailed comment. “One could argue that jobs and valuable IP will -- for now -- remain here in the UK at a time when Truss is keen to ‘get Britain moving,’ but that doesn’t mean another buyer won’t sweep in within the coming months.”

Darktrace also reported revenue for the full year on Thursday that met the average analyst estimate.

Read More: Foreign Buyers Hoover Up Britain’s Fast-Growing Tech Firms

(Updates with analyst comments.)

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