Sophos plans major cyber security IPO

Thirty years after it began producing antivirus and encryption products, Sophos has announced plans to raise $100 million via a stockmarket listing in London this summer. It will mean a bumper payday for the firm's founders, staff and private equity firm Apax Partners, which bought a majority stake five years ago that valued the business at $830 million.

Clearly, Sophos will be worth significantly more this time round. Billings have grown by 44% since 2010, revenue 72% to $447 million and unlevered free cash flow is up a fifth to $65.3 million. In the year to March 2015, the high margin business - cash profit margin has averaged almost 24% over the past three years - made a cash profit of $101.4 million.

Sophos, which will use the money to reduce net debt from $319 million, or 3.1 times cash profits to 2.2 times, sells anti-virus, anti-spyware, client firewall, host intrusion prevention, and disk encryption products to companies with 100-5,000 employees. It's a market said to be worth $18 billion in 2014. Over half its customers are in Europe and the Middle East, nearly a third in the Americas and 14% in Asia Pacific.

"The group's business model provides a high level of billings and revenue visibility, driven by a high proportion of subscription agreements, which are typically paid up front," says the firm. It boasts high and stable renewal rates with an enduser net renewal rate of 99.3% for the year-ended 31 March 2015.

This is effectively the third time Sophos has discussed an IPO - the financial crisis scuppered the first attempt, then co-founders Jan Hruska and Peter Lammer decided against a float in 2010, instead offloading the stake to Apax in 2010.

And there's an experienced management team in place, strengthened recently by the appointment of Halma chairman Paul Walker as senior independent director. Kris Hagerman, who took over as CEO from Canadian Steve Munford in 2012, remains in charge. And finance boss Nick Bray has been at Sophos for five years following stints as chief number cruncher at Micro Focus International, Fibernet Group and Gentia Software.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.