Darktrace's takeover talks with Thoma Bravo collapse

Acquisition talks terminated hours before Darktrace disclosed accounting errors in financial statements

Cambridge-based AI and cybersecurity firm Darktrace saw its share price tumble by nearly 35% after US private equity firm Thoma Bravo announced that it did not intend to make an acquisition bid for the company.

The board of Darktrace also confirmed later that the talks with Thoma Bravo had come to an end.

Darktrace acknowledged last month that it had engaged in preliminary talks with Thoma Bravo about a potential acquisition, but on Thursday it said that "an agreement could not be reached on the terms of a firm offer."

The company added that Darktrace was no longer in "an offer period for the purpose of the UK Takeover Code" and that the board continues to be highly optimistic of the company's future prospects "as demonstrated by its FY22 results".

"Darktrace remains unrelentingly focused on its mission to free the world of cyber disruption and, thereby, enhance its position as a global leader in cyber security artificial intelligence," the firm noted.

The acquisition talks terminated hours before Darktrace disclosed that it had incorrectly recorded millions of pounds in sales in this year's financial statements rather than in those of the previous year.

"Darktrace has determined that $3.8m of revenue it had been recognising in [financial year] 2022, including a portion recognised and reported in its unaudited [first half of] 2022 results, was related to prior periods and should instead be recognised in FY 2021," Darktrace said.

According to Darktrace CEO Poppy Gustafsson, Thoma Bravo was unaware of the financial restatement before cancelling the potential takeover on Wednesday evening.

On Thursday, Darktrace reported that its fiscal 2022, which concluded on June 30th, had a 46% increase in sales year over year, hitting $415.5 million. In comparison to the previous year, when it lost $146 million, it reported a $1.46 million profit.

Darktrace provides artificial intelligence-based cybersecurity services, claiming that their products provide quicker detection and response than traditional enterprise cybersecurity products, which rely relatively more on human input.

According to the company, it is "a pioneer in autonomous response technology," which aids customers in thwarting cyber threats across diverse digital environments, such as the cloud and networks, the Internet of Things (IoT), and industrial control systems.

This year, Darktrace has benefited from a rise in demand for cybersecurity services spurred by the conflict in Ukraine and evolving cyber threats.

Darktrace was founded in 2013 by Mike Lynch, who is now defending himself against fraud claims at a different business and is no longer operationally engaged with Darktrace.

Hewlett Packard purchased Mike Lynch's previous company Autonomy for $11 billion in 2011, but the following year, HP wrote out $8.8 billion of its worth and charged Lynch with fraud.

The London High Court ruled earlier this year that Lynch and Autonomy's head of accounting had committed fraud.

Lynch is also fighting US criminal accusations and an extradition request from US authorities.

With $114 billion in assets, Chicago-based Thoma Bravo is one of the most active investors in cybersecurity companies worldwide.

Last month, the business disclosed its $2.8 billion acquisition of US-based identity management solutions provider Ping Identity. The company acquired email security provider Proofpoint for $12.3 billion in 2020.