McAfee’s Cybersecurity Private Equity Takeover: 6 Things To Know

From McAfee unexpectedly releasing its third quarter financial earnings report today to the group of investors taking over the company, here are six big things you need to know about McAfee’s $14 billion takeover.

What You Need To Know About McAfee’s $14 Billion Takeover

After just one-year as a public entity, cybersecurity standout McAfee will be taken private again via a $14 billion blockbuster acquisition by a slew of private equity and investment firms.

The San Jose, Calif.-based consumer security company said being acquired will provide McAfee with both financial and operational resources to boost its consumer offering and capture the growth in demand for security protection services.

“This transaction is a testament to McAfee’s market-leading online protection solutions, our talented employees, and outstanding customers and partners,” said McAfee President and CEO Peter Leav in a statement. “We are thrilled to be partnering with premier firms who truly understand the cybersecurity landscape and have a proven track record of success.”

From McAfee unexpectedly releasing its third quarter financial earnings report today to the specific group of investors taking over the security company, CRN breaks down five key things investors, channel partners and customers need to know about the blockbuster deal.

This Will Be The Biggest Security Acquisition In History

The cybersecurity landscape is being shaken up as private equity and investment firms acquire some of the biggest cybersecurity providers in the world.

If McAfee’s acquisition by the group of private equity and investment firms is completed, it will mark the largest pure-play cybersecurity acquisition in history at $14 billion.

Previously, the largest cybersecurity acquisition in history came earlier this year when Thoma Bravo acquired Proofpoint for $12.3 billion.

Some of the other largest cybersecurity deals in IT history include Broadcom’s $10.7 billion acquisition of Symantec Enterprise in 2019; NortonLifeLock’s acquisition of Avast in 2021 for $8.6 billion; as well as Okta’s purchase of Auth0 for $6.5 billion earlier this year.

Jon Winkelried, McAfee’s chairman of the board and CEO of investment firm TPG, which partners with McAfee, said the acquisition “signals continued growth and opportunity” for the security company.

“Over the last four years, the company has expanded its product portfolio, enhanced its go-to-market strategy, and pursued strategic M&A, including the divestiture of its enterprise business,” said Winkelried in a statement today. “We’re proud that today McAfee is a leading consumer cybersecurity franchise, protecting the digital lives of 20 million subscribers across the globe.”

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McAfee To Go Private After One-Year Public Debut Anniversary
With the $14 billion acquisition, the group of private equity and investment firms will take complete ownership of McAfee with plans to take the company private once again.

McAfee’s common stock will no longer be listed on any public securities exchange when the deal is completed, according to the company.

McAfee went public in October 2020, raising $740 million on a $9.5 billion valuation, which was at the time the highest ever market cap for a newly public cybersecurity vendor. That valuation included both McAfee’s consumer and enterprise businesses, the latter of which was sold to Symphony Technology Group in July for $4 billion.

The October 2020 initial public offering raised $740 million for McAfee which was used to repay debt.

Looking at the ownership structure at McAfee, in 2010, Intel acquired McAfee for $7.7 billion. It then sold in 2017 to TPG for $4.3 billion, at which time Thoma Bravo and Intel retained minority stakes in.

Nearly 68 percent of current shareholders, including TPG and Intel, have agreed to the terms of the takeover, McAfee said today.

Who’s Buying McAfee?

McAfee has officially entered into a definitive agreement to be bought by an investor group led by Advent International Corporation and Permira Advisers LLC, Crosspoint Capital Partners, Canada Pension Plan Investment Board, GIC Private Limited, and a wholly owned subsidiary of the Abu Dhabi Investment Authority.

Founded in 1984, Advent is a large global private equity firm with over 380 investments across 42 countries. As of June 2021, the firm had $81 billion in assets under management with 15 offices in 12 countries.

“McAfee is one of the most trusted brands in the essential business of consumer digital protection,” said Bryan Taylor, Head of Advent’s Technology Investment Team in a statement. “As consumers face new and complex cyber risks, we see tremendous opportunity to build on McAfee’s differentiated technology platform to continue delivering innovative solutions that can protect all facets of the digital lives of people around the world.”

Permira advises funds with total committed capital of approximately $50 billion and makes long-term majority and minority growth investments. Permira has a particular focus on digital consumer and enterprise cloud end markets. Founded in 1985, Permira employs over 350 people in 15 offices across Europe, North America, and Asia.

“The need for personalized, innovative, and intuitive online protection services has never been greater,” said Brian Ruder, Co-Head of Technology at Permira in a statement. “McAfee boasts an enviable brand, extensive partner ecosystem, loyal customer base and a rigorous commitment to product development. With our extensive experience in scaling global consumer technology and cybersecurity businesses, we are excited to work closely with McAfee and our fellow investors to help position the company for even greater heights.”

Besides Advent and Permira, Crosspoint Capital Partners is a private equity investment firm focused on the cybersecurity, privacy and infrastructure software markets with offices in California and Massachusetts.

Greg Clark, Managing Partner at Crosspoint Capital and former CEO of Symantec said, “Consumers buy from brands they trust, and with the globally recognized brand of McAfee, we see the long term opportunity to deliver products and services to address these risks in all aspects of their digital presence.”

Additionally, Canada Pension Plan Investment Board is a professional investment management organization that manages more than 20 million contributors and beneficiaries of the Canada Pension Plan.

McAfee Unexpectedly Unveils Earnings

In an interesting move, McAfee unveiled today its third fiscal quarter financial results—which ended Sept. 25, 2021—the same day it announced its plan to be acquired.

McAfee generated $491 million in revenue during its third quarter, representing an increase of 24 percent compared to $395 million in third quarter 2020.

“Our continued commitment to secure our customers’ online footprint helped us add 640,000 net new direct-to-consumer subscribers, a year-over-year increase of 16 percent in Q3,” said McAfee’s CEO Leav in a statement today. “We continue to invest in our online protection services and diversified go-to-market channel, as consumers increasingly adopt digital services.”

The company reported a gross profit of $373 million, up 31 percent from $283 million in third quarter 2020.

McAfee now has 20.1 million core direct-to-consumer subscribers as compared to 17.3 million in the same period in 2020.

McAfee Sold Its Enterprise Business To Focus On Consumers Only

It is key to note that McAfee is now striving to become a direct-to-consumer company versus selling to businesses via channel partners following the sale of its enterprise business to Symphony Technology Group earlier this year.

In July, McAfee sold its enterprise business for $4 billion to a consortium led by Symphony Technology Group in a move to cut its debt. Earlier this year, McAfee also paid a special dividend of $4.50 a share to shareholders including TPG, Intel and Thoma Bravo.

Additionally, Symphony completed its $1.2 billion acquisition of its FireEye products business in October with plans to merge the McAfee and FireEye brands together in the near future.

With its upcoming acquisition from the investor group, it’s important to know that McAfee is now narrowing its focus and directing its resources to the consumer side of the business in a bid for long-term growth.

The deal is expected to be completed in the second half of 2022.

Key Details Of The Deal; ‘Go Shop’ Period

Looking at the shareholder details and acquisition figures, the investor group will acquire all outstanding shares of McAfee common stock for $26 per share in an all-cash transaction valued at $12 billion. This means McAfee shareholders will receive $26 in cash for each share of common stock they own.

The deal is valued at over $14 billion on an enterprise value basis after giving effect to repayment of McAfee debt.

The purchase price represents a premium of approximately 22.6 percent over McAfee’s closing share price of $21.21 on November 4, 2021, the last trading day prior to media reports regarding a potential sale of McAfee.

However, McAfee’s board and advisors may actively initiate, solicit and consider alternative acquisition proposals during a 45-day “go shop” period, according to a release from McAfee.

This means McAfee has the right to terminate the merger agreement to accept a “superior proposal” during the go-shop period, subject to the terms and conditions of the merger agreement, according to a release by McAfee. There can be no assurances that this process will result in a superior proposal, and McAfee does not intend to disclose developments with respect to this solicitation process unless and until McAfee’s board makes a determination requiring further disclosure, said the company.