Darktrace Shares Tumble After Takeover Talks Fail | Technology

Shares of Darktrace, a British artificial intelligence and cybersecurity company, fell nearly 35% after US private equity firm Thoma Bravo pulled out of a possible takeover of the company, whose founder, Mike Lynch, is fighting extradition to the United States for fraud. .

Despite full-year results that showed a surge in sales, helping the Cambridge-based company turn a profit after last year’s heavy losses, investors sold Darktrace shares en masse on Thursday, as odds a profitable takeover evaporated.

Under City takeover rules, Thoma Bravo cannot return with an offer within six months unless certain conditions are met, such as a competitor entering the fray or a deal made directly with the City board. Darktrace.

As Darktrace’s stock fell on Thursday, closing 34.5% at 337.1p, ShadowFall, a hedge fund that took big bets on its stock’s fall, said the end of interest in Thoma Bravo justified his belief that the company was overvalued.

But in a statement accompanying the annual results of Darktrace, its second as a public company after last year’s stock market float, the chief executive shrugged off dissolving talks that could have triggered £200m payouts for senior executives.

“To be listed on the London Stock Exchange is exactly what we want to be right now,” said Poppy Gustafsson, a former Lynch protege who still owns more than 12% of the company, along with his wife.

Lynch’s legal woes have cast a shadow over Darktrace, despite his day-to-day involvement with the company which ended earlier this year.

The billionaire, who has been described as Britain’s answer to Microsoft founder Bill Gates, is expected to find out within weeks if he has been granted the right to appeal against his extradition to the United States, where he faces charges $11 billion (£9.5 billion). ) selling his technology company Autonomy to Hewlett-Packard in 2011.

His former lieutenant, former Autonomy chief financial officer Sushovan Hussain, was jailed for the same deal.

During its IPO last year, Darktrace admitted that there was a risk of facing possible money laundering charges, if the proceeds from the sale of Autonomy were found to have helped finance its growth.

In the UK this year, the High Court ruled that Lynch misled HP into paying way too much for Autonomy, leading to the US buyer suffering a $9 billion write-down on the value of its acquisition.

The case involved accounting trickery that was allegedly used by Autonomy staff to misrepresent how its software was selling, including deferring revenue that should not have been accounted for yet.

In Thursday’s annual results, Darktrace tried to be upfront about the timing of revenue recognition, revealing that $3.8 million in revenue should have been recognized in 2021, rather than reported in its first-half results. semester 2022.

Despite the disclosure, the company posted a strong operating performance as sales soared nearly 46% to $415 million, turning last year’s $144 million pre-tax loss into a $5 million profit. of dollars.

“Since our introduction to the public markets, we have accelerated our growth by adding game-changing products to our platform, including our new Prevent [cyberdefence software] offerings,” he said.

“We have a proven business model, which generates cash. Today’s results are another example of our strong performance.

Darktrace has been plagued by criticism from ShadowFall, a firm that specializes in short selling (betting against) companies it believes are overvalued and currently holds a short position against the cybersecurity firm.

“Since our first short in September 2021, Darktrace has been a significant contributor to the ShadowFall Fund,” said Matthew Earl, ShadowFall Managing Partner.

“For some time, we have struggled to be satisfied with its quality as an investment. We see this morning’s announcement [ending its takeover interest] as supporting our point of view and continue to believe that there are many issues with Darktrace, including issues with accounting, governance and culture.

Darktrace has divided opinion since last year’s float, its value soaring in six months as its conservatively priced float of 250p soared to 945p.

It has since suffered huge falls after criticism from City and ShadowFall analysts, followed by a sharp rise in its market value from £2.6bn to £3.6bn, on the interest in Thoma Bravo’s offer.

By mid-morning Thursday, its market capitalization was down to just over £2.5 billion.

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