Darktrace–Thoma Bravo Deal: An Antigen Reaction?

September 21, 2022

Darktrace is one of the cyber threat detection outfits to which I pay some attention. I read “Darktrace Shares Plunge After Thoma Bravo Acquisition Falls Apart.”

The article quotes an expert as saying:

“I don’t think Thoma Bravo is backing off of Darktrace because of valuations,” he [Richard Stiennon, chief research analyst at IT-Harvest] says. “I think strategically there is not a clear market for the AI-enhanced threat hunting that Darktrace touts. The market is pretty much equal to Darktrace’s revenue today.”

My take on the deal is that the cyber threat detection and cyber threat information services are not convincing some skeptical prospects. News like the teen who compromised the Uber taxi service and the sharp rise in ransomware attacks has created some Nervous Nellies. Multi-persona phishing and old fashioned social engineer work in today’s work-from-home world. Plus, there is nothing like a bundle of cash promised to an insider who might be tempted to exchange access credentials for a new Tesla or a shopping spree at Costco.

Darktrace has done a masterful job of marketing. The Bayesian methods work reasonably well in certain use cases. Quite a chunk of change has been spent buying and marketing cyber related businesses.

One report (“Shares Plunge As US Private Equity Titan Backs Out of Darktrace Takeover“) said:

Darktrace revenue grew 45.7 per cent in the financial year to 30 June, while the customer base swelled 32.1 per cent year-over-year. However, the firm did note an accounting mishap, stating that $3.8m of revenue it had been recognising in the full year, including a portion recognised and reported in its unaudited half year results, was related to prior periods and should instead be recognised in full year 2021 results. This reallocation would reduce revenue reported this year to $415.5m from the $419.3m that was expected.

And cyber crime is at an all time high, but I am not sure any firm, including Darktrace, has cracked the code.

Stephen E Arnold, September 21, 2022

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