10 Things To Know About The Thoma Bravo-Proofpoint Deal And Stock Hike

Here’s a look at how Proofpoint can leverage Thoma Bravo’s expertise and track record to its advantage, the likelihood of another buyer coming in with a superior bid for Proofpoint, and why this deal is likely to kick off a tech M&A spree.

The Biggest Security Deal Of All-Time

Proofpoint will potentially walk away from the public market nearly a decade after its initial public offering following the $12.3 billion purchase offer from private equity giant Thoma Bravo. The potential acquisition of the Sunnyvale, Calif.-based email security powerhouse would add yet another cybersecurity firm to the expansive portfolio of Chicago and San Francisco-based Thoma Bravo.

“We have made tremendous strides in expanding the sophistication and scale of our offerings, and in 2020 we generated more than $1 billion in annual revenue – making Proofpoint the first SaaS-based cybersecurity and compliance company to reach that milestone,” Proofpoint Chairman and CEO Gary Steele said in a statement.

The Thoma Bravo-Proofpoint deal will be the largest acquisition in cybersecurity history, beating out Broadcom’s $10.7 billion purchase of Symantec in August 2019, Intel’s $7.6 billion buy of McAfee in July 2010, and Okta’s proposed $6.5 billion acquisition of Auth0 in February 2021. Proofpoint will become the world’s most valuable privately-held cybersecurity firm, beating Tanium’s valuation by $3.3 billion.

Here’s a look at how Proofpoint can leverage Thoma Bravo’s expertise and track record to its advantage, the likelihood of another buyer coming in with a superior bid for Proofpoint, and why this deal is likely to kick off a tech M&A spree.

10. Proofpoint Is World’s Sixth-Largest Cybersecurity Vendor

Proofpoint is one of the just six publicly traded cybersecurity companies to have revenues of more than $1 billion last year, with sales surging by 18 percent in 2020 to $1.05 billion. That makes Proofpoint larger than every cybersecurity-focused vendor outside of Palo Alto Networks, McAfee, Fortinet, Check Point and Trend Micro.

This year is shaping up to be even bigger for Proofpoint, with the company projecting a sales bump of roughly 14 percent in 2021 to between $1.19 billion and $1.2 billion. Proofpoint’s revenue in the quarter ended March 31 increased 15 percent to $287.8 million, beating analyst projections of $281.7 million, according to Seeking Alpha.

Profitability, however, remains elusive for Proofpoint, with the company recording a net loss of $163.8 million in 2020 and projecting a net loss of between $143.4 million and $154.4 million in 2021. The company’s net loss for the quarter ended March 31 improved by 32 percent to $45.3 million, or 79 cents per share. That, however, fell short of analyst expectations of 61 cents per share, Seeking Alpha said.

9. Proofpoint Has Made Five Acquisitions In Recent Years

The company has expanded aggressively beyond email security and into adjacent fields over the past three-and-a-half years through a series of acquisitions. Proofpoint kicked things off in November 2017 with its $60 million purchase of browser isolation offerings vendor Weblife.io, extending the company’s advanced threat protection capabilities into personal email.

Then in February 2018, the company bought Wombat Security Technologies for $225 million to fuse its own advanced threat protection capabilities with Wombat’s phishing simulation and cybersecurity awareness and training. In May 2019, Proofpoint purchased Meta Networks for $120 million to help customers better protect people, applications, and data as they move beyond the traditional perimeter.

Six months later, Proofpoint bought insider threat management platform provider ObserveIT for $225 million to better protect data across email, cloud, and the endpoint. And in February 2021, Proofpoint purchase data loss protection MSSP InteliSecure for $62.5 million to help customers protect critical data in diverse environments.

8. Proofpoint Continues To Modestly Increase Size Of Workforce

Proofpoint’s 3,665 employees are the seventh-most of any publicly traded cybersecurity vendor, and the company’s headcount has grown by 8 percent over the past year, according to LinkedIn. The company has hired most aggressively in its sales and IT divisions – with headcount increasing by 13 percent in each – while staffing levels rose by 6 percent in engineering and fell by 4 percent in support.

Palo Alto Networks has the largest headcount of any publicly traded cybersecurity vendor with nearly 10,000 employees, while McAfee and Fortinet both have headcounts in the mid-8,000 range, according to LinkedIn Meanwhile, Trend Micro has nearly 7,000 employees, Check Point has nearly 6,000 employees, and Okta has nearly 4,000 employees, surpassing Proofpoint’s headcount in recent months.

Proofpoint is in the middle of the pack when it comes to headcount growth, with its rate of hiring over the past year coming in at 12th-fastest among the 27 publicly traded cybersecurity vendors, LinkedIn said.

7. Proofpoint’s Valuation Has Increased 32X Since Going Public

Proofpoint went public a decade after its founding, raising $82.3 million as part of an April 2012 initial public offering on the Nasdaq Stock Exchange that valued the company at $385.6 million, or $13 per share. The company’s stock has climbed steadily since its IPO, first surpassing the $50 per share mark in January 2015 and the $100 per share mark in January 2018.

However, Proofpoint’s valuation had largely stagnated the past three years, with the company’s stock closing Friday at $131.78 per share, less than 8 percent higher than the company’s April 20, 2018, closing price of $122.07 per share. The investment community has continued to undervalue Proofpoint, which Wedbush Securities analyst Daniel Ives considers to be “a core asset in the market.”

The company’s stock is up $41.10, or 31.18 percent, to $172.88 per share in trading midday Monday. Prior to the Thoma Bravo acquisition announcement, Proofpoint’s stock had never traded above $140 per share. Once the deal closes in the third quarter of this year, Proofpoint will exit the public markets worth nearly 32 times as much as it was when it debuted on the public markets nearly a decade earlier.

6. Proofpoint Will Have 8th Highest Valuation Of Any Cybersecurity Vendor

Thoma Bravo’s proposed acquisition price of $12.3 billion for Proofpoint makes the company more valuable than all but seven cybersecurity vendors. CrowdStrike is the world’s most valuable cybersecurity vendor with a valuation of nearly $50 billion, while Okta, Palo Alto Networks and Fortinet all currently have valuations in the mid-$30 billion range.

Meanwhile, Zscaler and Cloudflare have valuations in the mid-$20 billion range, while Check Point Software Technologies is worth about 25 percent more than Proofpoint with a $16 billion valuation. The acquisition proposal by Thoma Bravo propelled Proofpoint past McAfee’s valuation of nearly $11 billion, with Trend Micro trailing the pack with a valuation of nearly $7 billion.

Proofpoint had the fifth slowest-growing stock of all 27 cybersecurity vendors for a 12-month period ending in late January 2021. Between January 2020 and January 2021, Proofpoint’s stock climbed by just 7 percent to $131.25 per share, worse than every cybersecurity vendor with the exceptions of Trend Micro, Secureworks, Cyren and top competitor Mimecast.

5. Proofpoint Can Solicit Other Bids, But None Are Expected

Thoma Bravo’s offer includes a 45-day “go-shop” period, allowing Proofpoint’s board to actively solicit competing bids, terminate the proposed deal from Thoma Bravo, and accept a superior proposal from another suitor should an offer come by June 9. However, Wedbush Securities analyst Daniel Ives doesn’t see another bidder for Proofpoint, and doesn’t expect the Thoma Bravo deal to hit regulatory bumps.

Proofpoint’s board of directors has unanimously approved the Thoma Bravo acquisition and recommends that shareholders vote in favor of the deal. Proofpoint’s board and named executive officers hold just 2.4 percent of outstanding company shares, with only CFO Paul Auvil holding a stake in the company of greater than 1 percent.

The company’s largest institutional investors are T. Rowe Price, which holds a 14.5 percent stake in Proofpoint, and Vanguard, which holds a 9.2 percent stake in Proofpoint, according to documents filed with the U.S. Securities and Exchange Commission in April 2020.

4. After An 18-Month Break, Thoma Bravo Resumes Its Cybersecurity Buys

Thoma Bravo has returned to the buyer’s side of the table after a massive cybersecurity acquisition spree in 2018 and 2019. During those two years, Thoma Bravo agreed to buy: storage and security player Barracuda Networks for $1.6 billion; security information and event management vendor LogRhythm; application and data protection vendor Imperva for $2.1 billion; application security vendor Veracode for $950 million; and SMB platform security stalwart Sophos for $3.82 billion.

The private equity firm also bought a controlling stake in identity management vendor Centrify in July 2018, and three months later unveiled plans to spin the company’s Identity-as-a-Service business into a stand-alone operation called Idaptive. Thoma Bravo sold Idaptive to Centrify rival CyberArk in May 2020 for $70 million, and sold Centrify to TPG in January, where the company is merging with Thycotic.

“Thoma Bravo’s approach to value creation is rooted in partnering with the organization in which we invest and looking for opportunities to both enhance their existing operations and build technology platforms that drive significant growth,” Thoma Bravo Managing Partner Seth Boro said in a statement announcing the Proofpoint acquisition.

3. Proofpoint Channel Team Gains New Faces, Loses A Familiar One

Proofpoint has completely revamped its channel organization this year, bringing in ex-Bitdefender and Fortinet partner leader Joe Sykora (pictured) to serve as the company’s first-ever global channel chief. In his first four months at Proofpoint, Sykora has brought on Bitdefender and Fortinet teammate Bill Bellano to run channels in the Eastern U.S. as well as McAfee’s Chari Rhoades to build out global partner programs.

At the same time, Americas channel chief Keith Joseph left Proofpoint after nearly three years to pursue another opportunity, Sykora told CRN in late February.

Sykora told CRN that the company is in the process of rolling out partner specializations around its security awareness training and insider threat management offerings, based off the acquisitions of Wombat and ObserveIT, respectively. The specializations are intended to make it easier for partners to sell, demo and provide value-added services around these emerging technologies, according to Sykora.

2. Deal Will Help Proofpoint Reach Operational, Market Ambitions

Proofpoint was approached by Thoma Bravo, and closely reviewed the private equity firm’s proposal with the assistance of independent financial and legal advisors, said Dana Evan, lead independent director on Proofpoint’s board. The company determined the deal would create immediate and certain value for shareholders and help Proofpoint achieve its operational and market ambitions more quickly.

The proposed acquisition by Thoma Bravo is expected to give Proofpoint the flexibility and resources needed to continue providing an effective cybersecurity and compliance offering, the company said. Proofpoint said it also expects to benefit from Thoma Bravo’s operating capabilities, capital support and deep sector expertise.

“We believe that, as a private company, we can be even more agile with greater flexibility to continue investing in innovation, building on our leadership position, and staying ahead of threat actors,” Proofpoint Chairman and CEO Gary Steele said in a statement. “Thoma Bravo is an experienced software investor, providing capital and strategic support to technology organizations, and our partnership will accelerate Proofpoint’s growth and scale at an even faster pace.”

1. Proofpoint Deal Expected To Kick Off Tech M&A Spree

A massive spree of mergers and acquisitions is expected in the software and cybersecurity space over next 12 to 18 months among private equity firms, financial buyers, and strategic players, according to Wedbush Securities analyst Daniel Ives. These buyers have $500 billion of cash on the sidelines, and Ives said tech firms and investors alike are looking to fortify their position in the cybersecurity arms race.

Tech stock have languished so far in 2021, which has created golden opportunities for mergers and acquisitions by strategic and financial buyers, according to Ives. “We view the Microsoft/Nuance marriage and now the Proofpoint deal as just the tip of the iceberg around a broader M&A spree in the tech landscape for the remainder of 2021,” Ives said.

After a monster 2020 in which seven cybersecurity vendors at least doubled their valuations, 2021 is off to a slower start, with only Fortinet and McAfee (along the 10 most valuable cybersecurity companies) growing their stock price by more than 15 percent so far this year. Proofpoint had been treading water, with the company’s stock price down 0.7 percent in 2021 prior to the Thoma Bravo deal announcement.