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London-listed cybersecurity company Darktrace plc it has received a preliminary takeover approach from US-based private equity group Thoma Bravo on 15 August 2022.  Prior to its on the London Stock Exchange’s Main Market in May 2021, Darktrace was viewed as the crowning jewel of the UK tech industry but in the last six months the company has seen its shares languish around 320 pence from a high of 985 pence in September 2021. Thoma Bravo must announce whether or not it has a firm intention to make an offer for Darktrace by the ‘put up or shut up’ deadline of 12 September 2022 according to UK takeover rules.

Thoma Bravo’s possible offer has reignited concerns that star UK technology companies are being lost to foreign businesses. For example, Cambridge-based semi-conductor chip designer Arm Holdings plc was purchased by Japanese conglomerate SoftBank Group Corporation in 2016 and looks set to list on the Nasdaq following its foiled sale to US tech company Nvidia, despite intense lobbying by the UK government (for more on Arm, see: ,  and ). However, unlike Arm, any potential takeover of Darktrace is expected to be called-in by the UK government for assessment under the National Security and Investment Act 2021 (NSIA 2021), which grants the UK government the power to scrutinise and, if necessary, intervene in qualifying acquisitions in order to protect national security (for more, see Practice Note: (a subscription to Lexis®PSL Corporate is required)).

Darktrace provides artificial intelligence-based cybersecurity services and is, therefore, an attractive target given companies’ growing concern regarding geopolitical risk, especially amidst the ongoing conflict in Ukraine. Indeed, cybersecurity is increasingly a worry for companies, with many employees working entirely remotely or in a hybrid capacity following the coronavirus (covid-19) pandemic, leaving businesses facing new challenges in keeping networks secure.  Unlike other FTSE 350 companies, Darktrace’s shares did not decline sharply following the outbreak of the Ukraine conflict and instead remained steady which can, in part, be attributed to an increase in demand for advanced cybersecurity services as a result of hybrid working.

Thoma Bravo’s possible offer comes amidst attempts to extradite Darktrace’s founder, Mike Lynch, to the US on fraud charges related to the sale of Autonomy Corporation plc (a company also founded by Lynch) to Hewlett-Packard in 2011. While Lynch retains a small shareholding of 3.4% in Darktrace, he no longer has any day-to-day involvement with the company. However, the allegations against him have dented the company’s reputation, with many former Autonomy employees holding key roles at Darktrace, including Darktrace’s current CEO Poppy Gustafsson.

Should Darktrace be taken private by US-based Thoma Bravo, it will be a further blow to the London markets. Despite the January 2022 changes to the Listing Rules aimed at making London a more attractive listing venue to growth companies (see Practice Note:  (a subscription to Lexis®PSL Corporate is required)), London has continued to find it difficult to convince high-value technology companies of the benefits of listing in the square mile and remains in fierce competition with the tech-heavy Nasdaq.  

Market Tracker will continue to monitor this transaction as it develops.