By Jack Briody, Lorraine Jiang and Tristan Yang (Columbia University) 17/11/2018 |
Overview of the deal
Acquirer: BlackBerry Limited
Target: Cylance Inc.
Estimated value: $1.4bn
Announcement date: November 16, 2018
Acquirer Advisors: Perella Weinberg Partners LP
Target Advisors: Morgan Stanley, Jones Day
In a decision to burn through nearly two thirds of its cash balance, BlackBerry Limited recently announced an all-cash deal with Cylance Inc. This will be BlackBerry’s largest acquisition to-date, which, barring regulatory issues, is expected to close by February 2019. If successful, BlackBerry-Cylance will be yet another deal in the recent string of cybersecurity acquisitions such as Cisco-Duo ($2.4bn) and Thoma Bravo-Veracode ($950mm), representing the continuation of market consolidation.
In response to stiff competition with Apple and Android in the smartphone industry, BlackBerry decided to terminate in-house phone production in 2016. Growing at a rate of nearly 90% and bringing in over $100mm in 2017 revenue, Blackberry sees Cylance as the perfect opportunity to complete their move from phone production to security software. Going forward, Cylance will operate as a separate business within BlackBerry that will work in tandem with BlackBerry’s Unified Endpoint Management (UEM) and QNX units.
“Cylance’s leadership in artificial intelligence and cybersecurity will immediately complement our entire portfolio, UEM and QNX in particular. We are very excited to onboard their team and leverage our newly combined expertise...We believe adding Cylance’s capabilities to our trusted advantages in privacy, secure mobility, and embedded systems will make BlackBerry Spark indispensable to realizing the Enterprise of Things.” -John Chen, BlackBerry CEO
Company details (BlackBerry Limited)
BlackBerry Limited (BB), one of the top smartphone players prior to the iPhone boom, now focuses on security, efficiency, and management solutions within the Enterprise of Things (EoT). BlackBerry’s main product offerings include BlackBerry Enterprise Mobility Suite, Dynamics, and AtHoc.
- Founded in 1984, headquartered in Waterloo, Canada
- Executive Chairman and CEO: John Chen
- Number of employees: 4,044
- Market Cap: $4.86bn - EV: $3.33bn
- LTM Revenue: $882mm - LTM EBITDA: $63mm
- LTM EV/Revenue: 3.8x - LTM EV/EBITDA: 52.9x
Company details (Cylance Inc.)
In developing software that uses machine learning methods to solve cyber-security problems, Cylance Inc. has become a leader in the anti-virus space. Cylance’s contributions include CylancePROTECT, CylanceOPTICS, and CylanceV.
- Founded in 2012, headquartered in Irvine, California, USA
- Co-Founder, Chairman & CEO: Stuart McClure
- Number of employees: 868
- Market Cap: N/A - EV: N/A
- LTM Revenue: N/A - LTM EBITDA: N/A
- LTM EV/Revenue: N/A - LTM EV/EBITDA: N/A
Projections and assumptions
Interestingly enough, BlackBerry’s stock has only been trading about 1.7% higher than it was prior to the announcement, demonstrating a fairly limited investor response to the deal. On the one hand, this could be a reflection of the fact that investors believe that the deal success has a low probability. As will be discussed below, this is not likely, given that the risks and barriers associated with the deal are minimal. On