Sophos Eyes More M&A After Close Of $3.9 Billion Thoma Bravo Deal

‘Some of the largest companies in security are really struggling, stumbling or having real disruption issues, and we’re coming into a period of extraordinary strength and momentum,’ Sophos CEO Kris Hagerman says.

Sophos plans to continue pursuing strategic acquisition opportunities in emerging technologies following the $3.9 billion sale of the SMB platform security stalwart to Thoma Bravo.

The Abingdon, U.K.-based vendor’s recent acquisition into the cloud security, managed detection and response, managed threat response, and anti-ransomware spaces have worked well for Sophos, said CEO Kris Hagerman. And as Sophos has increased its scale and continues to build out into its API-rich Sophos Central console, Hagerman said the company’s M&A opportunities should increase.

“I certainly expect you'll see more of that [under Thoma Bravo],” Hagerman told CRN. “And, if anything, I would expect probably a little more than what we've done in the past, rather than less.”

[Related: 10 Things To Know About The Planned $3.82 Billion Thoma Bravo-Sophos Deal]

The company has made seven acquisitions over the past half-decade. Those deals including the $120 million Invincea purchase in 2017 aimed at boosting Sophos’ capabilities around AI and machine learning and the $31.8 million buy of anti-ransomware player Surfright in 2015. Sophos has also sprinted out of the gates with a managed threat response offering based off its 2019 acquisitions of Rook Security and DarkBytes, Hagerman said.

Sophos officially excited the public market Monday four and a half years after its initial public offering following the close of Thoma Bravo’s $3.9 billion acquisition of Sophos. The deal represents the biggest equity check written in the history of the Chicago and San Francisco-based private equity giant, according to Hagerman.

“It’s a big commitment from them,” Hagerman said. “We’re proud of it.”

Thoma Bravo has moved aggressively into the cybersecurity space over the past two years with the purchases of Barracuda Networks, LogRhythm, Imperva, Veracode, Centrify and Idaptive, and staked a claim in the IT service management space by acquiring Continuum and ConnectWise and then brought the two entities together as a single company in October 2019.

Hagerman said there’s an opportunity to have discussions with other security and IT services companies under the Thoma Bravo umbrella, and would consider any partnerships that are jointly beneficial. However, Thoma Bravo is primarily interested in driving the success of its individual portfolio companies, and Hagerman said they’ve indicated they intend to run Sophos as an independent entity.

Both Hagerman and Sophos’ existing management team are expected to stay around under Thoma Bravo, and Hagerman said no material restructuring of the Sophos business is expected. Sophos CFO Nicholas Bray left the company in November after nine years in the role to take the CFO position at travel commerce platform Travelport.

FlightPath IT began working with Sophos a year ago so that it could bring endpoint protection and desktop encryption together as part of a single offering, according to Vice President Thomas Bechard.

Bechard said he appreciated that Intercept X provided multi-tenancy while at the same time allowing policies to be customized for individual users.

Under Thoma Bravo, Bechard said he’d like to see Sophos revamp its interface to reduce the learning curve for new users. The interface today is functionally great but not very intuitive, meaning that FlightPath IT has to spend a fair amount of time training customers how to use the custom policy management features, said Bechard.

Hagerman, meanwhile, said Sophos has in recent years done a good job of pivoting to next-generation offerings, which now represent 60 percent of the company’s entire business, growing by 44 percent on a year-over-year basis. The company has also grown its MSP business by 75 percent on a year-over-year basis, according to Hagerman.

All told, Sophos grew its revenue to $365.8 million in the first six months of fiscal 2020, which ended Sept. 30, 2019, up 4.7 percent from $349.5 million in the first half of the 2019 fiscal year.

“We really like the position we’re in,” Hagerman said. “This transition that we’re driving continues to pick up steam.”

Thoma Bravo takes control over Sophos at a time when many of its top competitors are going through major transitions. Symantec has walked away from much of its business outside the upper enterprise after being purchased by Broadcom; McAfee got a new CEO and is reported to be seeking a new private equity buyer; and Webroot was sold to Carbonite, which was in turn sold to OpenText.

“Some of the largest companies in security are really struggling, stumbling or having real disruption issues, and we’re coming into a period of extraordinary strength and momentum,” Hagerman said. “And so we are extremely excited about what the next chapter may hold for us.”