top of page

Thoma Bravo’s $1.3bn Acquisition of Magnet Forensics

By Abdallah Zakaria, Filip Stoilov and Matilda Oculy (The University of Manchester), Friedrich von Storch, Enrique Pérez-Hernández and Ties Oudmayer (IE University)

Photo: Eduard Delputte (Unsplash)

 

Overview of the deal


Acquirer: Thoma Bravo

Target: Magnet Forensics

Total Transaction Size: $1.3bn

Announced date: January 20th, 2023

Target advisor: Morgan Stanley and CIBC Capital Markets (Financial), Blake, Cassels & Graydon LLP (Legal)

Acquirer advisor: McMillan and Kirkland & Ellis LLP (Legal)


Thoma Bravo has agreed to acquire Canada’s Magnet Forensics Inc. in an all stock deal worth $1.34 billion, adding another cybersecurity asset to the private equity firm’s portfolio. The deal will be completed through Morpheus Purchaser, a newly established entity controlled by the private equity group. Following the acquisition, Magnet Forensics, which makes digital investigation software, will merge with Grayshift LLC, a company Thoma Bravo acquired last year and specialises in mobile device digital forensics.


Magnet was founded by Adam Belsher and Jad Saliba in 2010, who will both assume leadership roles in the newly merged company, alongside Grayshift founders David Miles and Braden Thomas.


Upon announcement of the deal, Magnet’s share price rose 14 percent to $43.65, giving the company a market value of approximately $1.8 billion. Most shareholders will receive $44.25 for their shares, while rolling shareholders, including certain members of the board, will receive $39 for each subordinate and multiple voting share they hold.


Magnet has previously and will in the future continue to benefit from the growing market for digital forensics. According to a recent Imarc report, the market is expected to grow from $5.8 billion in 2022 to $10.9 billion in 2028. Grayshift’s mobile access and extraction capabilities in combination with Magnet’s digital investigation software will strongly position the merged firms. The deal will allow customers to better extract, process, examine, collaborate on, and manage digital forensic evidence.


“Digital evidence is an increasingly critical aspect of investigations and the combined company will be well positioned to further market expansion, accelerate innovation, and provide even greater solutions to its customers.” - Hudson Smith, Partner (Thoma Bravo)

Company Details (Acquirer - Thoma Bravo)


Thoma Bravo is one of the largest software investors in the world with a 40+ year history and over $120 billion in assets under management as of September 30, 2022. The firm is headquartered in Chicago and has offices in Miami, London, New York and San Francisco. Thoma Bravo’s current portfolio includes 70+ companies that generate over $24 billion of annual revenue and employ over 85,000 colleagues around the world.


Founded in 2008, headquartered in Chicago, US

CEO: Orlando Bravo

Number of employees: 110 (2020)

AUM: $120bn (as of 30/09/2022)


Company Details (Target - Magnet Forensics)


Magnet Forensics offers software solutions and professional services for digital forensics to investigate and prevent digital crimes. Its flagship product, Magnet AXIOM, enables investigators to collect, analyse, and report on digital evidence from various sources. The company also provides training, consulting, and custom development services. Its solutions are used by law enforcement, government, and corporate security teams to investigate and prevent cyberattacks and digital crimes.


Founded in 2011, headquartered in Waterloo, Ontario, Canada

CEO: Adam Belsher

Number of employees: 500

Market Cap: $1.3bn (as of 08/03/2023)

EV: $1.2bn

LTM Revenue: $98.9mn

LTM EBITDA: $11.9mn

LTM EV/Revenue: 12.2x

LTM EV/EBITDA: 101.7x


Projections and Assumptions


Short-term consequences


Under the terms of the deal, a new company owned by Thoma Bravo, Morpheus Purchaser Inc., will buy Magnet Forensics and offer its shareholders a 15% premium to the unaffected closing price on January 19, 2023. After the purchase, Morpheus will combine with Grayshift, a company that specialises in mobile device forensics and that Thoma Bravo gained majority ownership of in July 2022.


Through the transaction and the following merger, Thoma Bravo aims to build a leader in the cybersecurity and digital forensics sectors. The acquisition comes after strong recent growth for Magnet, which has been able to increase its annual recurring revenue by 50% to $80.9 million in the recent quarter and its EBITDA rose 25% to $5.9 million year-over-year. By combining the two companies, Thoma Bravo intends to tap into the significantly growing demand for digital forensics - a market expected to reach $10.9 billion in value by 2028 from $5.8 billion in 2022.


The deal will require the approval of at least two-thirds of the votes cast by Magnet Forensics shareholders at a special meeting scheduled for March 15, 2023 and is expected to face opposition by shareholders who believe that the offer undervalues Magnet Forensics and does not reflect its long-term potential.


Long-term Upsides


The combination of Magnet with Grayshift is expected to result in significant synergies through the creation of a powerful end-to-end investigation platform, which will allow public safety agencies to become more efficient in solving crimes. This is expected to be achieved by combining the mobile access and extraction capabilities of Grayshift with the digital investigation products of Magnet, thus achieving a better ability to extract, process, and examine digital forensic evidence.


The founders of both Magnet, Adam Belsher and Jad Saliba, and Grayshift, David Miles and Braden Thomas, will all assume critical roles within the newly created firm. According to Belsher, who is currently the CEO of Magnet, the deal will create a great amount of value for the customers of both Magnet and Grayshift by combining the products of both companies, resulting in better workflows and an improved ability to analyse digital evidence. Thoma Bravo has further deepened its expertise in the cybersecurity sector through previous acquisitions, which include the cybersecurity firms SailPoint, Ping Identity Holding, Sailpoint Technologies, ForgeRock and Coupa Software. The newly created company will therefore benefit from Thoma Bravo’s knowledge acquired through prior acquisitions and expand into new markets and foster innovation, according to Hudson Smith, a partner at Thoma Bravo.


Risks and Uncertainties


A main risk for Thoma Bravo lies in the uncertainties surrounding the integration of Magnet Forensics with Grayshift, both in terms of combining and growing their product lines and capabilities. Complications may further arise as the growth strategies are set and executed for the newly created entity. Moreover, challenges in retaining Magnet’s and Grayshift’s existing customers, as well as key employees, during the transition period remain major uncertainties surrounding the deal.


The newly created company will face further risks related to its capacity to prevent unwarranted access to the data it holds, in the event of digital breaches or viruses. The integrity of its products is therefore at risk, such as the operationality of its products. The deal’s success further depends on global changes in the digital forensics industry and the impact of existing and potential future competitors.


“Bringing Magnet and Grayshift together will accelerate innovation and ultimately transform digital investigations. Today's announcement is a defining moment in the industry, and together we will accelerate the future of digital forensics.” - David Miles, Co-Founder and CEO (Grayshift)

Sources:

Comments


bottom of page