Darktrace shares fall after takeover talks collapse | Technology

Shares in Darktrace, the British artificial intelligence and cybersecurity firm, plunged 30% after US private equity firm Thoma Bravo backed away from a potential takeover of the company, whose founder Mike Lynch is fighting extradition. to the United States on charges of fraud.

Despite full-year results that showed rising sales, helping the Cambridge-based company turn last year’s heavy losses into profit, investors sold Darktrace stock in droves on Thursday, as that the chances of a lucrative acquisition evaporated.

Under city acquisition rules, Thoma Bravo cannot return with a bid within six months, except if certain conditions are met, such as a rival bidder entering the fray or a deal is struck directly with the board of directors. Darktrace.

As Darktrace shares fell almost a third to 353.6 pence in morning trading on Thursday, ShadowFall, a hedge fund that has bet heavily on its shares falling, said the end of Thoma Bravo’s interest vindicated their belief. that the company was overvalued.

But in a statement accompanying Darktrace’s annual results, the second as a public company after last year’s stock listing, the chief executive shrugged off the dissolution of talks that could have generated £200m in pay for top managers.

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

Lynch’s legal troubles have cast a shadow over Darktrace, even though his day-to-day involvement in the business ended earlier this year.

The billionaire, who has been described as Britain’s answer to Microsoft founder Bill Gates, is expected to learn in a few weeks whether he has won the right to appeal against extradition to the US, where he faces charges over the sale of his technology for 11,000 million dollars. Business autonomy to Hewlett-Packard in 2011.

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His former lieutenant, former Autonomy CFO Sushovan Hussain, has been jailed for the same deal.

When it went public last year, Darktrace admitted there was a risk it could face potential money laundering charges, should it be discovered that the proceeds from the sale of Autonomy helped finance its growth.

In the UK this year, the high court ruled that Lynch had misled HP into paying too much for Autonomy, resulting in the US buyer.

The case centered around accounting tricks allegedly used by Autonomy staff to paint a false picture of how well its software was selling, including taking in revenue that shouldn’t have been accounted for yet.

In Thursday’s full-year result, Darktrace took pains to be candid about the timing of revenue accounting, revealing that $3.8 million of revenue should have been booked in 2021, instead of being reported in its full-year results. first half of 2022.

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

“Since going public, we have accelerated our growth by adding innovative products to our platform, including our new Prevent [cyberdefence software] Offerings

“We have a proven business model that is generating cash. Today’s results are yet another example of our strong performance.”

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

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

“For some time, we have struggled to be satisfied with its investment quality. We see the announcement this morning. [ending its takeover interest] in support of our opinion, and we continue to believe that there are numerous issues with Darktrace, including accounting, governance, and cultural issues.”

Darktrace has divided opinion since last year’s float, rising in value in six months when its conservatively priced 250p float price shot up to 945p.

Since then, it has suffered big drops after criticism from City and ShadowFall analysts, followed by a sharp rise in its market value, from £2.6bn to £3.6bn, due to interest from Thoma Bravo’s offer.

By mid-morning on Thursday, its market capitalization had fallen back to just over £2.5bn.

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