Private equity firm Thoma Bravo is adding to its already significant portfolio of cybersecurity companies after reaching an agreement with Darktrace’s directors to buy the British AI-based security firm for more than $5.3 billion and take it private.

Once the deal closes, Darktrace will join companies including Proofpoint, Sophos, Delinea, and Sailpoint in Thoma Bravo’s $45 billion cybersecurity lineup of companies. It represents the investment firm’s second – and this time successful – run at Darktrace. Two years ago, negotiations fell through without a deal being made.

The cash offer includes a $7.75-per-share valuation of the company, a 44% increase over its three-month average share price, according to Thoma Bravo.

Among Darktrace’s assets is its ActiveAI Security Platform. The platform uses self-learning AI techniques to detect and respond to known and unknown threats to a customer’s environment, from email to operational technology, both on-premises and in the cloud, leveraging the customer’s data. According to Andrew Almeida, a partner at the investment firm, wuch capabilities were a key driver in Thoma Bravo’s interest in Darktrace.

“Darktrace is at the very cutting edge of cybersecurity technology,” Almeida said in a regulatory filing by Darktrace. “The pace of innovation in cybersecurity is accelerating in response to cyber threats that are simultaneously complex, global and sophisticated. Darktrace is driven by a culture of innovation.”

An Evolving Cybersecurity Market

In the filing, Thoma Bravo noted that the cybersecurity space is evolving in both the volume and sophistication of threats and attacks. However, the market remains fragmented, with few truly global players. “Serving the world’s largest customers and enterprises requires Darktrace to continually make significant technology investments and further scale globally, to ensure that its platform can stay ahead of changing cyber threats. Thoma Bravo believes that private ownership can facilitate its development.”

Thoma Bravo invests in several software companies; it has more than $138 billion in assets under management. The company said it will use its platform and resources to continue to fuel the cybersecurity vendor’s growth. Darktrace has more than 2,300 employees and more than 9,400 customers around the world.

Darktrace CEO Poppy Gustafsson said the deal will accelerate the 11-year-old company’s growth. “Our technology has never been more relevant in a world increasingly threatened by AI-powered cyberattacks. In the face of this, we are expanding our product portfolio, entering new markets, and focused on delivering for our customers, partners and colleagues.”

Feeling Undervalued

The decision by Darktrace’s board to agree to the deal also is likely to come in part from the company’s rocky ride on the London Stock Exchange, which it listed on in 2021. Its share price hit a high later that year, but the stock took a hit the following year when Thoma Bravo decided to walk away from negotiations to buy it.

In 2023, QCM, a U.S. hedge fund, took out a short position against Darktrace, essentially betting the share price would fall. It and issued a 70-page report alleging flaws in the company’s accounting practices. Later in the year, accounting firm EY, hired by Darktrace after the allegations, cleared the cybersecurity vendor of any wrongdoing. The share price has risen steadily and it shot up more last month after Darktrace released positive financial figures.

However, Darktrace executives have felt that the company’s technology and growth were not appropriately appreciated during its time on the stock exchange. According to the Darktrace filing, the company’s board saw the acquisition by Thoma Bravo and investment firm’s decision to take it private as a smart move. “Darktrace Board believes that Darktrace’s operating and financial achievements have not been reflected commensurately in its valuation with shares trading at a significant discount to its global peer group,” the company wrote. “The Darktrace Board recognises that there are risks to, as well as uncertainty as to the timing and delivery of, shareholder returns on the public market and the Acquisition provides an opportunity for Darktrace Shareholders to receive the certainty of cash consideration at a fair value for their shares at this time in Darktrace’s evolution.”

The deal was seen by some as a blow to London’s cybersecurity market.

Then There was Mike Lynch

That said, Darktrace’s association with Mike Lynch, the former CEO of software maker Autonomy, which was bought for $11 billion by Hewlett-Packard (HP) in 2011 – four years before the IT giant split into two companies – likely didn’t help the company’s image.

Lynch and his wife reportedly own a combined almost 7% stake in Darktrace, but Lynch is on trial in San Francisco on accounting fraud charges connected with the disastrous sale of Autonomy. After the deal, HP had to write down the value of Autonomy by $8.8 billion. Now Hewlett Packard Enterprise – created after the 2015 HP split – is seeking $4 billion from Lynch and another one-time Autonomy executive, former CFO Sushovan Hussain.