Sophos : Offer for Sophos Group PLC

RNS Number : 7425P

Thoma Bravo LLC

14 October 2019

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF THAT JURISDICTION

FOR IMMEDIATE RELEASE

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

14 October 2019

RECOMMENDED CASH ACQUISITION

of

SOPHOS GROUP PLC

by

SURF BUYER LIMITED

(a newly formed company owned by funds managed and/or advised by Thoma Bravo, LLC)

to be effected by means of a Scheme of Arrangement

under Part 26 of the Companies Act 2006

Summary

• The board of directors of Surf Buyer Limited ("Bidco") and the board of directors of Sophos Group plc ("Sophos") (the "Sophos Board" or the "Sophos Directors") are pleased to announce that they have reached agreement on the terms of a recommended cash offer to be made by Bidco for the entire issued and to be issued share capital of Sophos (the "Acquisition"). The Acquisition will be implemented by way of a scheme of arrangement.
• Under the terms of the Acquisition, each Sophos Shareholder will be entitled to receive:

For each Sophos Share: $7.40 in cash

• The GBP equivalent value of the Acquisition price based on the Announcement Exchange Rate, being 583 pence, represents a premium of approximately:
• • 37.1% to the Closing Price of 425.5 pence per Sophos Share on 11 October 2019 (being the last Business Day before the date of this announcement); and
  • 45.6% to the daily volume weighted average price of 400.6 pence per Sophos Share during the six month period ended 11 October 2019 (being the last Business Day before the date of this announcement).
• The Acquisition values the entire issued and to be issued share capital of Sophos at approximately $3,820 million on a fully diluted basis and implies an enterprise value of $3,948 million (which is equivalent to £3,012 million and £3,113 million respectively based on the Announcement Exchange Rate) and a multiple of approximately 32 times Sophos' unlevered free cash flow of $124 million for the year ended 31 March 2019.
• Bidco will procure that a facility will be made available under which Sophos Shareholders will be able to elect (subject to the terms and conditions of the facility) to receive cash consideration in GBP (after deduction of any transaction or dealing costs associated with the conversion) at the applicable market exchange rate on the latest practicable date for fixing such rate prior to the relevant payment date. Further details of this facility and the election by Sophos Shareholders wishing to receive their cash consideration in GBP will be set out in the Scheme Document and the Form of Election. On the basis of the Announcement Exchange Rate, the cash consideration implies an equivalent value of 583 pence per Sophos Share. For any Sophos Shareholder electing to be paid their cash consideration in GBP, the amount per Sophos Share received may, depending on the prevailing exchange rate, result in a payment below or above 583 pence per Sophos Share.
• If, on or after the date of this announcement, any dividend and/or other distribution and/or other return of capital is declared, made or paid or becomes payable in respect of the Sophos Shares, Bidco reserves the right to reduce the consideration payable under the terms of the Acquisition for the Sophos Shares by an amount up to the amount of such dividend and/or distribution and/or return of capital, in which case any reference in this announcement to the consideration payable under the terms of the Acquisition will be deemed to be a reference to the consideration as so reduced. In light of this, the Sophos Directors do not intend to declare an interim dividend when they announce Sophos' interim results, scheduled for 6 November 2019.

Background to and reasons for the Acquisition

• Thoma Bravo, LLC ("Thoma Bravo") believes that the acquisition of Sophos represents an attractive opportunity to increase its exposure to the large and growing cybersecurity market. Sophos is a global leader in next-generation cybersecurity solutions spanning endpoint, next-generation firewall, cloud security, server security, managed threat response, and more. Sophos solutions are designed to be highly innovative and effective, and at the same time simple and intuitive for organizations of all sizes. Sophos Central, a cloud-

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native management platform, integrates Sophos' entire portfolio of next-generation products into a single "synchronized security" system accessible through APIs available to reseller and MSP partners, customers, and other vendors. Sophos is differentiated in the innovation and effectiveness of its next-generation security offerings; the ability to manage all those products in a single cloud-based management platform; the deep interoperability, coordination, and automation of its products; and the global reach of its "channel first" distribution strategy.

• Since inception, Sophos has grown substantially through organic development as well as through strategic acquisitions and today has established itself as a leading global provider of cloud-enablednext-generation end user and network security solutions with over 400,000 customers in more than 150 countries, over 47,000 channel partners and more than 100 million users.
• Thoma Bravo recognizes Sophos' management's track record driven by its innovative, simple and highly effective solutions, extensive partner network, and strong retention and renewal rates. Thoma Bravo believes that Sophos' significant investments in technology, products, and expertise are enabling the company to successfully evolve into a next-generation security leader with a significant opportunity to enhance its services offering. Thoma Bravo's expertise with cybersecurity software companies, strong operational framework, and its deep experience guiding companies through successful business model and technology transitions will enable it to accelerate Sophos' growth, enhance profitability, and further improve performance.

Recommendation

• The Sophos Directors, who have been so advised by J.P. Morgan Cazenove, Lazard, and UBS AG London Branch as to the financial terms of the Acquisition, consider the terms of the Acquisition to be fair and reasonable. In providing their financial advice to the Sophos Directors, each of J.P. Morgan Cazenove, Lazard, and UBS AG London Branch have taken into account the commercial assessments of the Sophos Directors. Lazard is providing independent financial advice to the Sophos Directors for the purposes of Rule 3 of the Takeover Code.
• Accordingly, the Sophos Directors intend to recommend unanimously that Sophos Shareholders vote in favour of the Scheme at the Court Meeting and the resolutions relating to the Acquisition at the General Meeting, as the Sophos Directors who hold Sophos Shares have irrevocably undertaken to do in respect of their own beneficial holdings totalling 3,825,706 Sophos Shares (representing approximately 0.8% of existing issued ordinary share capital of Sophos) as at 11 October 2019 (being the last Business Day before the date of this announcement).

Irrevocable undertakings

• In addition to the irrevocable undertakings of the Sophos Directors who hold Sophos Shares described above, Bidco has also received an irrevocable commitment to vote in favour of the resolutions relating to the Acquisition at the Meetings (or in the event that the Acquisition is implemented by an Offer, to accept or procure acceptance of such Offer) from the Pentagon Lock Entities (which are owned by funds advised by Apax Partners LLP), Peter Lammer and Jan Hruska in respect of 129,154,270 Sophos Shares (representing approximately 26.5% of the existing issued ordinary share capital of Sophos) as at 11 October 2019 (being the last Business Day before the date of this announcement).
• In total therefore, Bidco has procured irrevocable commitments to vote in favour of the resolutions relating to the Acquisition at the Meetings, including those from the Sophos Directors who own Sophos Shares, in respect of, in aggregate, 132,979,976 Sophos Shares (representing approximately 27.2% of existing issued ordinary share capital of Sophos) as at 11 October 2019 (being the last Business Day before the date of this announcement). Further details of these irrevocable undertakings (including the circumstances in which they cease to be binding) are set out in Appendix 3 to this announcement.

Information on Bidco and Thoma Bravo

• Bidco is a newly incorporated company, formed on behalf of funds managed and/or advised by Thoma Bravo.
• Thoma Bravo is a leading private equity investment firm that has been providing equity and strategic support to experienced management teams, building growing companies for nearly 40 years. The firm's partners pioneered the concept of "industry consolidation" or "buy-and-build" investing for private equity, which seeks to create value through the strategic use of acquisitions to accelerate business growth.

Thoma Bravo currently manages a series of private equity funds representing more than $35 billion of capital commitments. In the software industry, Thoma Bravo is one of the most active private equity firms, having completed more than 200 acquisitions representing over $50 billion in aggregate enterprise value.

Timetable and Conditions

• It is intended that the Acquisition will be implemented by way of a court‑sanctioned scheme of arrangement under Part 26 of the 2006 Act (although Bidco reserves the right to effect the Acquisition by way of an Offer, subject to the consent of the Panel and the terms of the Cooperation Agreement).
• The Conditions to the Acquisition are set out in full in Appendix 1 to this announcement along with certain other terms; the full terms and conditions will be provided in the Scheme Document.
• It is expected that the Scheme Document, containing further information about the Acquisition and notices of the Court Meeting and Sophos General Meeting, together with the Form of Election and associated forms of proxy, will be posted to Sophos Shareholders within 28 days of this announcement (or such later time as Sophos, Bidco and the Panel agree) and the Meetings are expected to be held shortly thereafter. The Acquisition is currently expected to complete during the first quarter of 2020, subject to receipt of the relevant competition clearances and regulatory approvals. An expected timetable of key events relating to the Acquisition will be provided in the Scheme Document.

Sophos trading update

• Business momentum has remained encouraging during Q2 FY20 and the first half of the financial year. Sophos Page 2 of 30

expects to report 9% constant currency billings growth for the six-months to the end of September, with continued growth in both end-user and network security, 12% constant currency growth in subscription billings, a modest year-on-year improvement in the net renewal rate and growth in business from brand new customers. Sophos is scheduled to report its full interim results on 6 November 2019.

Commenting on the Acquisition, Peter Gyenes, Chairman of Sophos said:

"It is the view of the Sophos Board that this is a compelling offer for Sophos shareholders which secures the delivery of future value for shareholders today. Thoma Bravo has deep sector expertise in cybersecurity software as well as a long and successful track record of partnering with and investing in its portfolio companies to support long-term growth and success. Under Thoma Bravo's ownership we expect Sophos to accelerate its evolution and leadership in next-generation cybersecurity. The Sophos Board believes that this recommended offer delivers a significant opportunity for all stakeholders - our shareholders, customers, partners, and employees."

Commenting on the Acquisition, Seth Boro, a Managing Partner at Thoma Bravo said:

"We are excited by the opportunity to partner with the Sophos management team and employees as we further develop Sophos as a best-in-class software franchise and nextgen security leader. The Acquisition fits with our strategy of investing in and growing software and technology businesses globally. The global cybersecurity market is evolving rapidly, driven by significant technological innovation, as cyber threats to business increase in scope and complexity. Sophos has a market-leading product portfolio and we believe that, by applying Thoma Bravo's expertise, operational framework and experience, we can support the business and accelerate its evolution and growth."

This summary should be read in conjunction with the following announcement and the Appendices. The conditions to, and certain further terms of, the Acquisition are set out in Appendix 1. The bases and sources for certain financial information contained in this announcement are set out in Appendix 2. Details of undertakings received by Bidco are set out in Appendix 3. Certain definitions and terms used in this announcement are set out in Appendix 4.

Enquiries:
Sophos Group plc	Tel: [phone]
Kris Hagerman, Chief Executive Officer	9933
Nicholas Bray, Chief Financial Officer
Derek Brown, Vice President Investor
Relations
Tulchan Communications (financial PR	Tel: [phone]
adviser to Sophos)	4200
James Macey White
Sunni Chauhan
Harry Cameron
Matt Low
J.P. Morgan Cazenove (lead financial	Tel: [phone]
adviser and corporate broker to Sophos)	4000
Gary Weiss
Bill Hutchings
James Robinson
Chris Wood
Lazard (financial adviser and Rule 3	Tel: [phone]
adviser to Sophos)	2000
Cyrus Kapadia
Philippe Noël
UBS AG London Branch (corporate	Tel: [phone]
broker and financial adviser to Sophos)	8000
Jonathan Rowley
David Roberts
Finsbury (PR adviser to Bidco and	Tel: [phone]
Thoma Bravo)	3801
Faeth Birch
Edward Simpkins
Goldman Sachs (financial adviser to
Bidco and Thoma Bravo)
Ward Waltemath	Tel: [phone]
Mark Sorrell	Tel: [phone]
	1000

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Chris Emmerson	Tel:	+44	(0)	20	7774
Jimmy Bastock (Corporate Broking)	1000
Tel:	+44	(0)	20	7774
	1000

Kirkland & Ellis International LLP is acting as legal adviser to Thoma Bravo and Bidco.

Slaughter and May is acting as legal adviser to Sophos.

Further information

Goldman Sachs International, which is authorised by the PRA and regulated by the FCA and the PRA in the United Kingdom, and Goldman Sachs & Co. LLC (together, "Goldman Sachs") are acting exclusively for Bidco and Thoma Bravo as financial advisers and no one else in connection with the Acquisition and other matters set out in this announcement and will not be responsible to anyone other than Bidco and Thoma Bravo for providing the protections afforded to clients of Goldman Sachs, nor for providing advice in connection with the Acquisition, the content of this announcement or any matter referred to herein. Neither Goldman Sachs nor any of Goldman Sachs' subsidiaries, affiliates or branches owes or accepts any duty, liability or responsibility whatsoever (whether direct, indirect, consequential, whether in contract, in tort, under statute or otherwise) to any person who is not a client of Goldman Sachs in connection with this announcement, any statement contained herein or otherwise.

J.P. Morgan Securities plc, which conducts its UK investment banking business as J.P. Morgan Cazenove ("J.P. Morgan Cazenove"), is authorised in the United Kingdom by the PRA and regulated by the PRA and the FCA. J.P. Morgan Cazenove is acting as financial adviser exclusively for Sophos and no one else in connection with the Acquisition and will not regard any other person as its client in relation to the Acquisition and will not be responsible to anyone other than Sophos for providing the protections afforded to clients of J.P. Morgan Cazenove or its affiliates, nor for providing advice in relation to any matter referred to herein.

Lazard & Co., Limited ("Lazard"), which is authorised and regulated by the FCA in the United Kingdom, is acting exclusively as financial adviser to Sophos and no one else in connection with the Acquisition and will not be responsible to anyone other than Sophos for providing the protections afforded to clients of Lazard nor for providing advice in connection with the Acquisition or any other matter referred to herein. Neither Lazard nor any of its affiliates owes or accepts any duty, liability or responsibility whatsoever (whether direct or indirect, whether in contract, in tort, under statute or otherwise) to any person who is not a client of Lazard in connection with the Acquisition, any statement contained herein or otherwise.

UBS AG London Branch ("UBS") is authorised and regulated by the Financial Market Supervisory Authority in Switzerland. It is authorised by the PRA and subject to regulation by the FCA and limited regulation by the PRA in the United Kingdom. UBS is acting exclusively as financial adviser to Sophos and no one else for the purpose of the Acquisition and will not be responsible to anyone other than Sophos for providing the protections offered to clients of UBS nor for providing advice in relation to the Acquisition or any transaction, arrangement or other matter referred to herein.

In accordance with the Takeover Code, Goldman Sachs International, J.P. Morgan Cazenove and UBS and their respective affiliates will continue to act as exempt principal trader in Sophos securities on the London Stock Exchange. These purchases and activities by exempt principal traders which are required to be made public in the United Kingdom pursuant to the Takeover Code will be reported to a Regulatory Information Service and will be available on the London Stock Exchange website at www.londonstockexchange.com. This information will also be publicly disclosed in the United States to the extent that such information is made public in the United Kingdom.

This announcement is for information purposes only and is not intended to, and does not, constitute or form part of any offer or invitation to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of, any securities or the solicitation of any vote or approval in any jurisdiction pursuant to the Acquisition or otherwise. The Acquisition will be made solely pursuant to the terms of the Scheme Document (or, if the Acquisition is implemented by way of an Offer, the Offer Document), which will contain the full terms and conditions of the Acquisition, including details of how to vote in respect of the Acquisition. Any decision in respect of, or other response to, the Acquisition should be made only on the basis of the information in the Scheme Document (or, if the Acquisition is implemented by way of an Offer, the Offer Document).

This announcement does not constitute a prospectus or prospectus equivalent document.

Overseas Shareholders

This announcement has been prepared in accordance with English law, the Takeover Code, the Market Abuse Regulation and the Disclosure Guidance and Transparency Rules and information disclosed may not be the same as that which would have been prepared in accordance with the laws of jurisdictions outside England.

The availability of the Acquisition to Sophos Shareholders who are not resident in and citizens of the UK may be affected by the laws of the relevant jurisdictions in which they are located or of which they are citizens. Persons who are not resident in the UK should inform themselves of, and observe, any applicable legal or regulatory requirements of their jurisdictions. In particular, the ability of persons who are not resident in the United Kingdom to vote their Sophos Shares with respect to the Scheme at the Court Meeting, or to appoint another person as proxy to vote at the Court Meeting on their behalf, may be affected by the laws of the relevant jurisdictions in which they are located. Any failure to comply with the applicable restrictions may constitute a violation of the securities laws of any such jurisdiction. To the fullest extent permitted by applicable law, the companies and persons involved in the Acquisition disclaim any responsibility or liability for the violation of such restrictions by any person. Further details in relation to Overseas Shareholders will be contained in the Scheme Document.

Unless otherwise determined by Bidco or required by the Takeover Code, and permitted by applicable law and regulation, the Acquisition will not be made available, directly or indirectly, in, into or from a Restricted Jurisdiction where to do so would violate the laws in that jurisdiction and no person may vote in favour of the Scheme by any such use, means, instrumentality or from within a Restricted Jurisdiction or any other jurisdiction if to do so would constitute a violation of the laws of that jurisdiction. Copies of this announcement and any formal documentation relating to the Acquisition are not being, and must not be, directly or indirectly, mailed or otherwise forwarded,

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distributed or sent in or into or from any Restricted Jurisdiction and persons receiving such documents (including custodians, nominees and trustees) must not mail or otherwise forward, distribute or send it in or into or from any Restricted Jurisdiction. Doing so may render invalid any related purported vote in respect of the Acquisition. If the Acquisition is implemented by way of an Offer (unless otherwise permitted by applicable law and regulation), the Offer may not be made directly or indirectly, in or into, or by the use of mails or any means or instrumentality (including, but not limited to, facsimile, e-mail or other electronic transmission, telex or telephone) of interstate or foreign commerce of, or of any facility of a national, state or other securities exchange of any Restricted Jurisdiction and the Offer may not be capable of acceptance by any such use, means, instrumentality or facilities.

Notice to US investors in Sophos

The Acquisition relates to the shares of an English company and is being made by means of a scheme of arrangement provided for under English company law. A transaction effected by means of a scheme of arrangement is not subject to the tender offer or proxy solicitation rules under the US Exchange Act of 1934. Accordingly, the Acquisition is subject to the disclosure requirements and practices applicable in the UK to schemes of arrangement which differ from the disclosure requirements of the US tender offer and proxy solicitation rules. The financial information included in this announcement has been prepared in accordance with generally accepted accounting principles of the United Kingdom and thus may not be comparable to financial information of US companies or companies whose financial statements are prepared in accordance with generally accepted accounting principles in the United States.

If, in the future, Bidco exercises its right to implement the Acquisition by way of an Offer, which is to be made into the United States, such Offer will be made in compliance with the applicable US laws and regulations.

It may be difficult for US holders of Sophos Shares to enforce their rights and any claim arising out of the US federal laws, since Bidco and Sophos are located in a non-US jurisdiction, and some or all of their officers and directors may be residents of a non-US jurisdiction. US holders of Sophos Shares may not be able to sue a non-US company or its officers or directors in a non-US court for violations of the US securities laws. Further, it may be difficult to compel a non-US company and its affiliates to subject themselves to a US court's judgement.

US Sophos Shareholders also should be aware that the transaction contemplated herein may have tax consequences in the US and, that such consequences, if any, are not described herein. US Sophos Shareholders are urged to consult with legal, tax and financial advisers in connection with making a decision regarding this transaction.

Forward Looking Statements

This announcement (including information incorporated by reference in this announcement), oral statements made regarding the Acquisition, and other information published by Bidco and Sophos contain statements which are, or may be deemed to be, "forward-looking statements". Forward-looking statements are prospective in nature and are not based on historical facts, but rather on current expectations and projections of the management of Bidco and Sophos about future events, and are therefore subject to risks and uncertainties which could cause actual results to differ materially from the future results expressed or implied by the forward-looking statements.

The forward-looking statements contained in this announcement include statements relating to the expected effects of the Acquisition on Bidco and Sophos (including their future prospects, developments and strategies), the expected timing and scope of the Acquisition and other statements other than historical facts. Often, but not always, forward- looking statements can be identified by the use of forward-looking words such as "plans", "expects" or "does not expect", "is expected", "is subject to", "budget", "projects", "strategy", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or statements that certain actions, events or results "may", "could", "should", "would", "might" or "will" be taken, occur or be achieved (or, in each case, their negative or other variations). Although Bidco and Sophos believe that the expectations reflected in such forward-looking statements are reasonable, Bidco and Sophos can give no assurance that such expectations will prove to be correct. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by such forward-looking statements.

These factors include, but are not limited to: the ability to complete the Acquisition; the ability to obtain requisite regulatory and shareholder approvals and the satisfaction of other Conditions on the proposed terms and schedule; as future market conditions, changes in general economic and business conditions, the behaviour of other market participants, the anticipated benefits from the proposed transaction not being realised as a result of changes in general economic and market conditions in the countries in which Bidco and Sophos operate, weak, volatile or illiquid capital and/or credit markets, changes in tax rates, interest rate and currency value fluctuations, the degree of competition in the geographic and business areas in which Bidco and Sophos operate, the consequences in the UK and globally from the withdrawal of the UK from the European Union, and changes in laws or in supervisory expectations or requirements. Other unknown or unpredictable factors could cause actual results to differ materially from those in the forward-looking statements. Such forward-looking statements should therefore be construed in the light of such factors. Neither Bidco nor Sophos, nor any of their respective associates or directors, officers or advisers, provides any representation, assurance or guarantee that the occurrence of the events expressed or implied in any forward-looking statements in this announcement will actually occur. You are cautioned not to place any reliance on these forward-looking statements. Other than in accordance with their legal or regulatory obligations, neither Bidco nor Sophos is under any obligation, and Bidco and Sophos expressly disclaim any intention or obligation, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Dealing and Opening Position Disclosure Requirements

Under Rule 8.3(a) of the Takeover Code, any person who is interested in 1% or more of any class of relevant securities of an Offeree company or of any securities exchange Offeror (being any Offeror other than an Offeror in respect of which it has been announced that its offer is, or is likely to be, solely in cash) must make an Opening Position Disclosure following the commencement of the offer period and, if later, following the announcement in which any securities exchange Offeror is first identified. An Opening Position Disclosure must contain details of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the Offeree company and (ii) any securities exchange Offeror(s). An Opening Position Disclosure by a person to whom Rule 8.3(a) applies must be made by no later than 3.30 pm on the 10th business day following the commencement of the offer period and, if appropriate, by no later than 3.30 pm on the 10th business day following the announcement in which any securities exchange Offeror is first identified. Relevant persons who deal in the relevant securities of the

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