KKR completes $3.8bn Barracuda acquisition

Tuesday 16 August 2022

KKR has completed the acquisition of Barracuda, a provider of cloud-first security solutions, from software investment firm Thoma Bravo.

KKR — a leading American global investment firm that manages multiple alternative asset classes, including private equity, energy, infrastructure, real estate, credit, and, through its strategic partners, hedge funds. CEO: Henry Kravis; AUM: $459 billion.

Thoma Bravo — a leading software and technology PE fund with a 40+ year history of providing capital and strategic support to experienced management teams. One of the world’s most active investors in cyber security companies, with a specialised set of dealmakers targeting the sector. CEO: Orlando Bravo; AUM: $114bn.

Barracuda — a cloud-first provider of cybersecurity solutions for SMEs that services 200,000+ customers worldwide protecting their email, networks, applications and data. CEO: Hatem Naguib.

Key Facts

• Financial terms have not been disclosed; Reuters estimate c.$3.8bn.
• Bought from ThomaBravo, deal first announced in April.

Transaction History

When Thoma Bravo bought Barracuda at $1.6bn in 2018 (paying shareholders $27.55 in cash per share at a premium of 22.5%), Barracuda was a $400 million run-rate business. Financial analyst Jason Ader said at the time: “For Barracuda, we believe the Thoma Bravo acquisition is probably the best scenario for shareholders, given skepticism regarding the company’s ability to transition the business from on-premises appliances to cloud-based solutions and recent margin challenges.” Thoma refocused the business on public cloud security along with network security (firewalls) and small and medium business customers, and has led the team through multiple acquisitions and operational improvements; “the company is well-positioned for continued success”.

Investment Rationale

Cybersecurity has been a highly attractive sector for PE since the onset of the coronavirus pandemic, with the increased focus on working from home leading to a concurrent boom in cybercrime and ransomware attacks. KKR are “excited to back a clear leader in the space”

• Barracuda has a proven track record of growth and innovation, the right team and model to capture business in the growing market.
• KKR have expertise and experience from sector investments including Ping Identity, Cylance, DarkTrace (being considered by Thoma Bravo), ForgeRock and NetSPI. Most notably Optiv Security Inc, which it acquired back in 2017 for almost $2 billion, expanded into Canada and Europe via numerous acquisitions, and grew to a reported valuation of over $3bn.

As well as security companies, KKR is keen to invest in telecoms infrastructure with a particular focus on fibre networks. E.g., Telefonica set up independent fibre infrastructure companies in Colombia and Chile in partnership with KKR, with a 40:60 split in each.

Investment Objectives

• Continue investing in team and product portfolio to provide innovative cybersecurity solutions for customers and partners;
• Expand the company’s offerings in various key areas, including managed detection and response and secure access service edge technology;
• Push to expand further into international markets.

Investment Professionals

• John Park, Partner at KKR
• Chip Virnig, Partner at Thoma Bravo

Financial Advisors

• KKR — Guggenheim Securities, DBO Partners and Barclays
• ThomaBravo & Barracuda — J.P. Morgan

Cybersecurity

The pandemic accelerated the trend of PE buyouts in the space, due to the increased number ransomware attacks and digital assaults; this year there has been a slow down:

2013 — VCs injected just over $1bn

2020 — $10bn

2021 — $25bn

2022 so far — $10bn

References

• Business Wire / Mobile World Live / Nasdaq / PE Wire / Reuters / Thoma Bravo / Total Tele

You might also enjoy…

• In February, reports suggested that KKR was exploring a sale or the launch of an initial public offering for Optiv.