Sophos plans £1bn stock market flotation

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An Oxfordshire-based cyber security company has been valued at just over £1bn in the first of what is expected to be a series of tech flotations on the London Stock Exchange this year.

Sophos shares were priced at 225p when it started trading on Friday, which will raise $125m (£80m).

The flotation - the third time Sophos has attempted an IPO - puts Sophos alongside large-scaled listed UK tech businesses including ARM Holdings and Sage, the Newcastle-based software firm.

The company makes security software and hardware products. It was founded in 1985 by Jan Hruska and Peter Lammer, who stepped down as joint chief executives in 2005. The company is now majority owned by the private equity group Apax Partners, which bought a stake in 2010.

The value of the company reflects the necessity for cyber safety at a time when attacks on personal computer security are hitting the headlines, said analysts.

“There is certainly a premium to be placed on security companies at the moment so it is not surprising to me. Security is very trendy, it is in demand, it is increasing its profile in the business community as well as technology,” said Duncan Brown of market research firm IDC.

“There is a big demand for security. There is a big shift in the demands of security in terms of the threat - both the type of threat and the numbers of threats increasing dramatically over the last two/three years.”

Sophos is offering just under 35% of its shares. The proceeds will be used to reduce debts and invest in growth. Chief executive Kris Hagerman described the move as a “significant milestone” for the company.

Sophos planned an IPO in 2007 but abandoned a listing due to weak investor interest. Another float was considered in 2009 but the founders instead opted to sell a majority stake to Apax.

Technology research company Megabuyte said the company may need to “accelerate its top line growth” to maintain the high valuation.

“If investors want to play the undoubted attractions of the cyber security market without betting on one of the very high risk smaller players, Sophos is really the only game in town,” said a note from research firm Megabuyte. The firm added that the Sophos float would help offset the loss of £5bn worth of telecoms and technology equity from the stock market in recent months due to merger and acquisition activity.

“On a broader point, the significance of this IPO for the London market should not be underestimated, especially given that over £5bn of equity value has been, or in the process of being taken off the market in recent months. It is the largest software IPO in London for many, many years (in fact we can’t remember the last time there was a £1bn software IPO in London) and is particularly significant as Sophos could easily have chosen to list in the US.”

Ian Spence, Megabuyte’s main analyst, said he expects two other tech companies to float by the end of the year. London-based software provider Softcat has been reported as planning a stock market flotation for later this year.

Powered by article was written by Shane Hickey, for The Guardian on Friday 26th June 2015 17.42 Europe/London © Guardian News and Media Limited 2010