Cybersecurity firm Darktrace plans £3bn IPO on London Stock Exchange
The British cybersecurity firm Darktrace has announced plans for a £3bn listing on the London Stock Exchange, providing a shot in the arm for the City after Deliveroo’s disastrous debut damaged the capital’s reputation for big tech “unicorn” flotations.
Poppy Gustafsson, the company’s 38-year-old chief executive who holds a stake that will be worth a reported £20m when it floats in about a month, said that London was the “natural choice” despite Deliveroo shares plunging after the food delivery company’s debut last month.
“This is an exciting landmark for us, a great British tech company,” Gustafsson said. “Our intention to list on the London Stock Exchange marks a major milestone in Darktrace’s history of rapid growth, and a historic day for the UK’s thriving technology sector.”
Founded in 2013 by mathematicians from the University of Cambridge, artificial intelligence (AI) experts and cyber specialists from GCHQ, Darktrace creates digital security products that “self-learn and self-heal” to enable businesses to stay one step ahead of hackers and viruses. Since signing up the Drax power plant as its first client, Darktrace has secured 4,700 customers, from Rolls-Royce to the NHS, which it helped fight the WannaCry virus in 2016.
The company’s advisory board includes the former M15 director-general Lord Evans of Weardale, the former home secretary Amber Rudd, and Alan Wade, who spent more than three decades working for the CIA.
Autonomy’s co-founder Mike Lynch’s Invoke Capital was Darktrace’s first shareholder, and remains its largest, with a 39.5% stake set to be worth almost £1.2bn at flotation.
However, Lynch is fighting extradition to the US, where he is accused of fraudulently inflating the value of Autonomy before its £8.4bn sale to Hewlett-Packard in 2011. Lynch, who could face a maximum prison sentence of 25 years if found guilty, denies any wrongdoing.
Sushovan Hussain, the former Autonomy finance chief who is also a Darktrace shareholder, was sentenced to five years in a US prison for fraud relating to the HP deal in 2019.
Gustafsson, who also worked at Autonomy, said that Lynch’s desire to remain in the UK played no part in Darktrace’s decision to reject flotation on the New York Stock Exchange or Nasdaq, both of which are popular with tech businesses.
“London was a very logical place for us,” said Gustafsson, who received an OBE for services to cybersecurity last year. “The management team is here within the UK, and also the UK has its significant heritage in both cybersecurity, with GCHQ, and the history at Bletchley Park, but also in terms of AI innovation, with the likes of Charles Babbage and Ada Lovelace, all the way to Alan Turing being the father of AI.”
Darktrace, which began offering its services to the NHS free of charge at the start of the pandemic, said that demand for some of its products had surged over the past year as companies struggled to keep up with security risks after the boom in homeworking.
“Darktrace’s services are certainly in demand as companies around the world fight cybersecurity issues,” said Russ Mould, the investment director at AJ Bell. “However, there is still some controversy to accompany its stock market debut. Mike Lynch is battling extradition to the US and his former colleague Sushovan Hussain is serving time in prison for fraud.
“It will be interesting to see if prospective investors view association with these two individuals as merely unfortunate or actually not a reason to not buy the shares.”
There were reports in February that the Swiss banking firm UBS had pulled out of plans to sponsor the float, owing to the company’s links to Lynch, who stepped down from Darktrace’s board in 2018.
Darktrace, which is co-headquartered in Cambridge and San Francisco, employs about 1,500 staff globally. About 40% of staff are female, including at top executive level, an unusual situation in the male-dominated tech industry where the average is closer to 15%. Gustafsson has previously said that she gets a reminder of the gender diversity issue on panels at tech events, where she is used to a “sea of men staring back at me”.
Darktrace says it is tapping a market worth about $40bn (£29bn), and its revenues have grown from $79m in 2018 to $199m in 2020. Adjusted earnings swung from a $27m loss to a $9m profit over the same period, helped by a sharp decline in travel costs because of restrictions imposed during the Covid pandemic.
The company plans to float at least 20% of its shares, with an option to release a further 15% of shares to the market. The money raised will help speed up product development and strengthen the balance sheet, Darktrace said.
Unlike Deliveroo, Darktrace has decided to avoid adopting a dual-class share structure, which gives founders and existing shareholders greater voting rights than new investors, and which some analysts believe contributed to the former’s poor stock market debut.
“There is a lot riding on Darktrace’s forthcoming IPO after Deliveroo’s stock market flop,” Mould said. “If Darktrace manages to float its shares successfully and see them rise in value once trading begins then sentiment may improve towards London as a listing venue.”