London is set for its biggest ever tech IPO after Sophos announced its intention to float on the London Stock Exchange with an expected target valuation of more than $1bn.
The security software company has eschewed the trend of London's tech firms crossing the pond in favour of a Nasdaq listing and expects to make its market debut in July, entering the FTSE 250.
Private equity firm Apax Partners, Sophos's majority owner, will float at least a quarter of the company to raise $100m to reduce debt. It currently has net debt of $318.8m, or 3.1 times Ebitda, for the year to the end of March and aims to reduce that to 2.2 times that with the float. There will also be an over-allotment option with a secondary offer of up to 15 per cent of shares.
Apax acquired its 70 per cent stake in Sophos in 2010 for £372m. The tech firm’s founders, Jan Hruska and Peter Lammer, who established the business in 1985, attempted to list in 2007 and 2009. However, both attempts were thwarted as the economic downturn curtailed investor appetite. Lammer and Hruska still hold minority stakes along with seats on the company’s board.
The IT security market is estimated to be worth $32.6bn and is forecast to grow by seven per cent this year and Sophos believes there is a growing market for security from mid-sized businesses.
"The group sells its products to enterprises of all sizes but its development, sales and marketing efforts are primarily focused on the mid-market, defined as comprising enterprises with between 100 and 5,000 employees. Sophos believes that this market, worth $18.0bn in 2014 and representing approximately 72 per cent of total IT security spending, has historically been underserved by IT security vendors due to their focus on either large enterprises or consumers. Mid-market enterprises face the same IT security threats as larger enterprises but have less resources, capacity and fewer personnel to address these threats," the company outlined.
Billings at the Oxford-based company, which serves 150 countries and boasts 100m users, were up 22.6 per cent for the year to March 31 to $476m.
"The importance of this cannot be over-emphasised...Assuming a valuation range of $1.5bn to $2.5bn, this will be the biggest tech IPO in the UK of all time. We’ve had very few in the last 15 years and most of those have been small," said TechMarketView's Richard Holway on the decision to list in the UK.
"IPOs create ecosystems. Where a company is headquartered and listed is usually where its top management resides and its principal R&D is undertaken. It is where its main accountants, legal advisers, investors/investment banks, PR people…and even analysts are located. In a Catch 22 situation, companies choose to IPO because of that ecosystem. So maybe Sophos will be the IPO that reverses the trend? Maybe, just maybe, we will see a reversal of the IPO tide in favour of the UK," he added.