Cyber security titan McAfee announced on Monday 8 November that it will go private in a deal with a consortium of investors led by private equity firms Advent International and Permira Advisers. At a value of $14 billion, this will be one of the largest leveraged buyouts of the year with the purchase price seizing a premium of 21% over McAfee’s closing market share price on 4 November. All outstanding shares will be bought in an all-cash transaction by the investor consortium, also comprised of Crosspoint Capital, CPP Investments, GIC and ADIA at $26.00 a share, valuing McAfee at roughly $12 billion on an equity value basis, and over $14 billion on an enterprise value basis after having repaid all its outstanding debt. A comparable deal was closed between the American cybersecurity company NortonLifeLock that acquired London-listed competitor Avast in August of 2020 for $8.6 billion to become the leader in consumer security software.
This deal, which is expected to close in the first half of 2022, has been approved by 67.9% of shareholders including TPG and Intel and will thus move forward to the next stages which are subject to the approval of the Committee on Foreign Investment in the United States. The investor consortium will raise $10 billion in debt from various banks and credit funds and contribute a total of $5.2 billion in equity to take McAfee private. However, McAfee under the terms and conditions of the merger has the right to consider alternative offers from other investors during a 45-day go-shop period and ultimately may terminate the merger in order to accept a proposal of superior value from said potential other investors in that period.
The recent shift to work from home induced by the pandemic resulted in an increase in cyber-attacks globally which benefited cybersecurity companies greatly. Furthermore, companies are shifting to cloud networks for their business operations both of which contributed to McAfee seeing a large increase in demand for their antivirus software which allowed them to increase prices, acquire new partner programs and see good retention rates. All this permitted McAfee to expand and strengthen its position in the cybersecurity software business and showcase its dominance which subsequently attracted private equity investors Advent and Permira.
The cybersecurity company was founded by John McAfee in 1987 when there was a relatively small market for such needs and quickly became a pioneer in the development of antivirus software for personal computers. McAfee managed to take full advantage of the dot-com bubble which started in 1995 allowing it to become the sixth biggest antivirus application vendor by market share. However, McAfee himself had left the company in 1994 and in June of 2021 was discovered dead in his prison cell in Spain just after the National Court approved his extradition to the United States over numerous tax fraud charges.
McAfee has a somewhat on and off relationship with the stock market. The company had its first IPO in 1999 raising roughly $75 million which allowed them to further expand their prominence as well as establish themselves as the first to market company for commercial antivirus and eventually get in the crosshairs of chipmaking giant Intel in 2010 who wanted to integrate the technology into its hardware. Intel bought McAfee for $7.7 billion and after 6 years decided to partner up with private equity firm TPG to turn McAfee into an independent cybersecurity company as a joint venture. That deal closed in early 2017 granting TPG a 51% stake in McAfee and allowing Intel to earn $3.1 billion whilst retaining a 49% share in the cybersecurity giant. TPG used $1.1 billion of equity for the purchase with the remainder of the acquisition being funded with debt. Private equity firm Thoma Bravo joined the venture a year later gaining a minority position in McAfee. The venture aimed at “applying greater market focus, building its platform and target new financial, operational and technology investments to better address the cybersecurity market’s significant global growth opportunity” Intel said in a press release.
In October of 2020, McAfee had another IPO with a very complex and intricate structure with two classes of stock, exchanges of management incentive units and LLC units and reorganization transactions; all of which is summarized in the above diagram McAfee provided in their SEC filling. This IPO allowed the company to raise $740 million which were used to repay debt and valued McAfee at $4 billion where Intel and TPG managed to remain major stockholders. However, that wasn’t enough and McAfee, in an attempt to further reduce its debt, sold its enterprise business in July of this year to Symphony Technology Group for $4 billion, after which a special dividend of $4.50 a share was paid out to all shareholders. This was the last major event before the takeover consortium announced its acquisition of McAfee.
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