Forescout To Be Bought By Advent International For $1.9 Billion

'In making its determination, the board of directors considered the likely volatility associated with the business model transition ... while managing to quarterly street estimates as a publicly traded company,' says Forescout Chair Theresia Gouw.

Forescout has agreed to be purchased by a private equity firm for $1.9 billion less than two and a half years after the Internet of Things security firm went public.

The $33-per-share deal is expected to provide San Jose, Calif.-based Forescout with the flexibility needed to continue investing in the development and deployment of leading-edge cybersecurity products and tools that serve the evolving needs of enterprise customers. The purchase price represents a 17.9 percent premium over Forescout’s closing share price Wednesday of $27.98 per share.

“We are still in early innings of a large market opportunity as every organization needs visibility into what is connected to their network and how to mitigate against high-risk devices, including nontraditional IoT and OT devices,” Forescout CEO Michael DeCesare (pictured) said in a statement. “This transaction represents an exciting new phase in the evolution of Forescout.”

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Forescout’s stock is up $5.52 (19.73 percent) to $33.50 in premarket trading Thursday. The agreement with Advent includes a 30-day “go shop” period expiring on March 8 during which time Forescout’s board can solicit alternative acquisition proposals by third parties. DeCesare will continue to lead Forescout, which will remain based in San Jose.

“Forescout is an ideal partner for Advent—as it’s a mission-critical business positioned to capitalize on key tech megatrends,” Advent Technology Investment Team head Bryan Taylor said in a statement. “The company has differentiated itself from its core competitors with its proprietary, agentless technology, making it ideal for large, complex organizations in a rapidly evolving cyber-risk landscape.”

Boston-based Advent teamed up in July with Permira Holdings and former Symantec CEO Greg Clark to draw up a competing bid to purchase publicly traded Symantec, Bloomberg reported in July. But Advent and Permira’s pursuit of Symantec was considered a long shot since it was unable to compete on price with Broadcom, which agreed in August to buy Symantec’s enterprise business for $10.7 billion.

Then in September, The Wall Street Journal reported that Advent and Permira hoped to join forces and purchase Symantec’s consumer business (now known as NortonLifeLock) for more than $16 billion. Clark is also part of the Forescout deal through his role as managing partner at private equity firm Crosspoint Capital, which is serving as a co-investor and adviser to Advent in the acquisition.

“As enterprises continue to shift to the cloud and decentralized networks, today’s chief information security officers are looking for secure solutions to increase visibility and provide orchestration, making their network controls more seamless,” Clark said in a statement. “Forescout’s platform is already ahead of the curve, and we believe we can further advance the company’s market position.”

Activist investors Corvex Management and Jericho Capital Asset Management disclosed a 14.5 percent ownership stake in Forescout on Oct. 21, with Corvex Managing Partner Keith Meister saying at an investment conference that month that the company has a chance to double its sales over the next five years as its shifts to a subscription-based model.

Then in early November, Forescout cut its 2019 revenue forecast as sales fell below expectations in Europe, the Middle East and Africa (EMEA). One week later, Bloomberg reported that Forescout was working with a financial adviser to explore strategic options, including a possible sale.

“In making its determination [to sell], the [Forescout] board of directors considered the likely volatility associated with the business model transition to ratable revenue recognition, changes to our go-to-market initiatives, particularly in EMEA, and timing of significant eight-figure deals, while managing to quarterly street estimates as a publicly traded company,” Forescout Chair Theresia Gouw said in a statement.

Forescout raised $116 million in an October 2017 Nasdaq initial public offering that valued the company at $800 million. The company grew head count by more than 28 percent to 1,126 employees between February 2018 and February 2019, but has slowed its hiring considerably over the past year.

The company reported Thursday an 8 percent increase in fourth-quarter revenue to $91.3 million, which missed Seeking Alpha’s quarterly revenue estimate of $95.2 million. And the loss for the quarter worsened by 12 percent to $20 million, or 42 cents per share, falling well short of Seeking Alpha’s loss estimate of 31 cents per share.

For all of 2019, Forescout’s sales increased by 13 percent to $336.8 million while the loss worsened by 58 percent to $118.5 million, or $2.58 per share.