Thoma Bravo Buys Magnet Forensics For $1.3B

January 24, 2023

Magnet Forensics, developer of digital investigation solutions for more than 4,000 enterprises and public safety organizations, is pleased to announce that it has entered into a definitive arrangement agreement with Morpheus Purchaser, a newly created corporation controlled by Thoma Bravo, a leading software investment firm, whereby the Purchaser will acquire the Company, subject to obtaining shareholder and other customary approvals (the “Transaction”). Under the terms of the Arrangement Agreement, holders of the outstanding Subordinate Voting Shares of the Company (other than Messrs. Jad Saliba and Adam Belsher and associates and affiliates thereof (collectively with Mr. Jim Balsillie and his associates and affiliates, the “Rolling Shareholders”)) will receive CA$44.25 cash per SV Share (the “Purchase Price”) and the Rolling Shareholders will receive CA$39.00 for each outstanding SV Share and Multiple Voting Share of the Company they sell for cash to the Purchaser, representing an aggregate total equity value of approximately CA$1.8 billion on a fully-diluted, in-the-money, treasury method basis and inclusive of Rollover Shares. Upon completion of the Transaction, Magnet will become a privately held company.

The Purchase Price represents a premium of approximately 15% to the closing price on the Toronto Stock Exchange of the SV Shares on January 19, 2023, the last trading day prior to the announcement of the Transaction, and a premium of approximately 41% to the 90-trading day volume weighted average trading price per SV Share as at that date. The Purchase Price is also above the 52-week high closing price of the SV Shares as of January 19, 2023, and represents a premium of approximately 160% to the Company’s initial public offering price of the SV Shares of CA$17.00. This value further represents an 87% premium to the closing price on October 5, 2022, the last day prior to Thoma Bravo’s submission of its initial non-binding proposal for an acquisition of the Company.

Following the closing of the Transaction, Thoma Bravo intends to combine the Company and Grayshift, which Thoma Bravo acquired majority control of in July 2022. The companies’ complementary offerings are expected to create a powerful end-to-end digital investigations platform empowering more public safety agencies around the world to seek justice, solve crimes, and protect victims. Grayshift is a leading provider of mobile device digital forensics, specializing in lawful access and extraction. By combining Grayshift’s mobile access and extraction capabilities with the Company’s digital investigation suite, customers are expected to be able to leverage the platform to extract, process, examine, collaborate on and manage digital forensic evidence. Adam Belsher and Jad Saliba, Founders of Magnet, and David Miles and Braden Thomas, Founders of Grayshift, will each hold critical leadership positions in the combined company. Magnet’s Chair, Jim Balsillie, will serve on the board of the combined company.

“We believe the combination of Magnet and Grayshift will unlock tremendous value for our customers by further integrating and expanding our product suite which will result in more seamless workflows in the recovery and analysis of critical digital evidence to investigations and ultimately contribute to our shared mission of the pursuit of justice,” said Adam Belsher, CEO of Magnet. “We look forward to partnering with Thoma Bravo and Grayshift to build upon our digital investigation suite to further innovate and continue to serve a growing number of organizations and use cases. We are confident that this transaction — joining two complementary organizations to form a new private company — offers the most compelling value creation for all our stakeholders and is a testament to the value of digital investigation solutions, the Magnet platform, our talented team, and loyal customer base.”

“Since early in Grayshift’s history, Magnet Forensics has been a trusted and strategic partner,” said David Miles, Co-Founder and Chief Executive Officer of Grayshift. “Bringing Magnet and Grayshift together will accelerate innovation and ultimately transform digital investigations. Today's announcement is a defining moment in the industry, and together we will accelerate the future of digital forensics.”

“We look forward to bringing together the complementary capabilities of Magnet and Grayshift to create a leader in the digital forensics and cyber security space,” said Hudson Smith, a Partner at Thoma Bravo. “Digital evidence is an increasingly critical aspect of investigations and the combined company will be well-positioned to further market expansion, accelerate innovation, and provide even greater solutions to its customers. We look forward to leveraging Thoma Bravo’s deep industry, operational and investment expertise to help the combined company capture the tremendous growth opportunities ahead.”

Transaction Details

The Company entered into the Arrangement Agreement based on the unanimous approval of the Company’s board of directors (the “Board”) (with conflicted directors abstaining) and the unanimous recommendation of a committee of independent directors (the “Special Committee”), that the Transaction is fair from a financial point of view to the holders of the Shares (the “Shareholders”) (other than the Rolling Shareholders), and is in the best interests of the Company. The Arrangement Agreement was the result of a comprehensive negotiation process that was undertaken at arm’s length with the oversight and participation of the Special Committee advised by independent and highly qualified legal and financial advisors. See “Unanimous Board Approval” below.

The Rolling Shareholders are effectively rolling over 55% of their Shares (in the aggregate approximately 15.9 million MV Shares and approximately 0.2 million SV Shares, collectively, the “Rollover Shares”) at an implied value per Share equal to CA$39.00 per Share, such that upon completion of the Transaction, they will be minority shareholders of the Purchaser. The remaining Shares owned by the Rolling Shareholders (in the aggregate approximately 13.0millionMV Shares and approximately 0.2millionSV Shares) will be sold to the Purchaser for cash at CA$39.00 per Share. The Rolling Shareholders, at the request of, and after negotiations with, the Special Committee, agreed to accept less per Share in order to benefit the holders of SV Shares.

As at the date hereof, the Rolling Shareholders own or control, directly or indirectly, all of the issued and outstanding 28,903,303 MV Shares, and Messrs Saliba and Belsher, together, own or control, directly or indirectly, an aggregate of 368,522 SV Shares, representing approximately 3.0% of the Company’s issued and outstanding SV Shares.

Unanimous Board Approval

The Board, with Messrs Saliba, Belsher and Balsillie declaring their conflicts of interest and abstaining from voting, unanimously approved the Arrangement Agreement following receipt of the unanimous recommendation of the Special Committee, which was appointed by the Board to, among other matters, review strategic alternatives for the Company including the Transaction, consider the Company’s best interests and the implications to shareholders and other stakeholders, and provide the Board with advice and recommendations with respect to the Transaction. As such, the Board unanimously, with the conflicted directors abstaining from voting, recommends that holders of SV Shares vote in favour of the Transaction. The Company intends to hold a special meeting of Shareholders in March 2023 (the “Shareholders’ Meeting”), where the Transaction will be considered and voted upon by Shareholders of record.

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