Kirkland, Latham shepherd Thoma Bravo’s £4.3bn Darktrace acquisition

Kirkland acts for marquee client Thoma Bravo as Latham counsels UK-listed cyber security company

Kirkland & Ellis and Latham & Watkins are advising on Thoma Bravo’s £4.3bn acquisition of cyber security company Darktrace.

Kirkland is repping Thoma Bravo on the deal having acted for the US software investor in numerous matters in the past, including its acquisition of British software firm Sophos in 2020 for £3.1bn.  

The Kirkland team is being led by corporate partners Francesca Storey-Harris, David Higgins – who also led on the Sophos deal – Corey Fox, Bradley Reed, Vincent Bergin and Steven Page. The rest of the team includes partners Brian Ford, Caitlin Bouey and Kirsteen Nicol (all debt finance); Marcus Thompson and Nick Niles (both international risk); Katie St. Peters and Nathan Jimenez (both investment funds); Matthew Sinclair-Thomson (antitrust); and Jenny Wilson (technology and IP transactions).  

Meantime Latham is advising Darktrace, having acted for the Mike Lynch-backed company on its £1.7bn IPO in 2021 and subsequent acquisition of smaller rival Cybersprint.  

The Latham team is being led by London M&A partner Richard Butterwick. Advice was provided on capital markets matters by London partners James Inness and Anna Ngo; on employment and benefits matters by London partner Kendall Burnett and Bay Area partner Ashley Wagner; and on regulatory matters by London partner Jonathan Parker.  

The agreed cash offer values Darktrace’s shares at 620p and represents a 44% premium to the group’s average share price in the three months to 25 April.  

The company was founded in 2013 with the backing of British tech entrepreneur Mike Lynch and uses AI-based cyber security services to detect threats and attacks in computer networks.  

Its revenue surged more than 25% in Q3 last year off the back of growing demand for its services due to an increase in digital attacks as well as the boom in AI.  

However the company has had a turbulent time on the London stock market, with prices plummeting in 2021 after stockbroker Peel Hunt published a sell note stating its total addressable market was much smaller than anticipated. It was later targeted by short sellers ShadowFall and Quintessential Capital Management, with the latter accusing it of questionable sales practices.

Darktrace has also struggled to disentangle itself from concerns over Lynch, who faces a fraud trial in the US over the sale of his former company Autonomy to Hewlett Packard in 2011. He has pleaded not guilty.  

Lynch no longer has any role at Darktrace but he and his wife collectively own a roughly 7% stake in the company, the Financial Times reported, meaning they stand to make around £300m should the sale go through.  

Darktrace said the acquisition would give it “access to a strong financial partner in Thoma Bravo with deep sector and US markets expertise who can support our growth”.

The company’s board had previously rejected proposed offers from Thoma Bravo on the basis they “did not fairly represent” Darktrace’s value.  

The agreed offer is conditional on being approved by the holders of 75% of Darktrace’s shares.  

For its part Chicago-based Thoma Bravo is one of the top software investors in the world, with $138bn in assets under management.  

The investor has been expanding in Europe – opening a London office in 2022 and completing its acquisition of German compliance software business EQS earlier this year. A Kirkland team led by transactional partner Benjamin Leyendecker counselled Thoma Bravo on the deal while EQS was advised by German firm GLNS.  

Goldman Sachs is acting as financial advisor to Thoma Bravo, with an Ashurst team led by corporate partner Tom Mercer and banking partner Tim Rennie acting for Goldman Sachs. Jefferies and Qatalyst Partners are acting as financial advisors to Darktrace. 

News of the acquisition comes amid a surge in global M&A after dealmaking slumped to a 10-year low in 2023. Global M&A volumes jumped 38% in the first quarter compared to the same period last year to nearly $800bn, according to LSEG, though deals are taking longer to complete amid increased regulatory scrutiny.

Latham placed sixth in the global M&A legal advisor rankings by deal value in the opening three months of the year, working on deals worth $84.9bn. The firm had placed second in the rankings for 2023 behind Kirkland, which advised on deals worth nearly $400bn over the course of the year. The firm had fallen to eighth spot at the end of this year’s opening quarter after advising on $80bn of deals.

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