Calling it a strategic, rational transaction, Laurentian Bank Securities analyst Nick Agostino is telling investors to take the deal on Magnet Forensics (Magnet Forensics Stock Quote, Charts, News, Analysts, Financials TSX:MAGT). In a Monday update to clients, Agostino moved his rating from “Buy” to “Tender” and his target price from $38.00 to $44.25, which is in-line with the proposed acquisition price.
Toronto-based cybersecurity company Magnet announced on Friday a definitive agreement to be acquired by Thoma Bravo in a deal pegged at $1.8 billion. Last year, Thoma Bravo bought a majority interest in Grayshift, a leading provider of mobile device digital forensics, specializing in lawful access and extraction, and Thoma Bravo said it intends on combining Grayshift’s mobile capabilities with Magnet’s digital investigation suite.
“We look forward to partnering with Thoma Bravo and Grayshift to build upon our digital investigation suite to further innovate and continue to serve a growing number of organizations and use cases,” said Magnet CEO Adam Belsher in a press release. “We are confident that this transaction — joining two complementary organizations to form a new private company — offers the most compelling value creation for all our stakeholders and is a testament to the value of digital investigation solutions, the Magnet platform, our talented team, and loyal customer base.”
Commenting on the proposed transaction, Agostino said it follows on a thorough review process that began in October 2022 and included a solicitation for other offers.
“In agreeing to the deal, MAGT notes a good strategic and cultural fit,” said Agostino in his report. “MAGT was already a reseller of Grayshift’s product and sees the combination as offering a complete end-to-end solution by combining Grayshift’s extraction expertise with MAGT’s data analytics forte.”
Agostino said the deal represents a sizeable premium paid and one toward the top end of recent transactions, with the $1.8 billion price equating to 12.5x Agostino’s 2022 Sales estimate and to 10.8x his next 12 months Sales. The analyst said that by comparison, the historical average since 2015 in the sector is 6.8x last 12 months Sales with the highest multiple of note at 11.2x in August 2022 when Alphabet acquired Mandiant. Agostino noted that when Thoma Bravo acquired Proofpoint in August 2021 in a similar transaction it paid a comparable 10.2x.
“The purchase price is a ~41 per cent premium to the 90-day VWAP and a ~160 per cent premium to the $17 MAGT IPO price. Moving to Tender from Buy, as we do not expect another offer and increase our TP to $44.25 in-line with the deal from $38,” Agostino wrote.
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