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Darktrace sale heightens fears over future of Britain’s tech sector – The Times - 19.08.22

The possible sale of Darktrace, which sponsors the McLaren Formula One team, has reignited concerns over the UK losing star tech businesses to foreign ownership says Katie Prescott for The Times.

Opposition is mounting to a potential sale of Darktrace, with shareholders and MPs speaking out over worries that it undervalues the Cambridge-based cybersecurity business and could have an impact on Britain’s wider technology ecosystem.

Several bidders are expected to join Thoma Bravo, the American private equity firm, in a race to buy the UK company, with Cisco, Palo Alto Networks and CrowdStrike among those tipped as potential candidates.

However, a significant shareholder in Darktrace, who declined to be named, said yesterday that they would be “disappointed” if the transaction went ahead as the company was undervalued relative to its peers, even after the share price had risen once the takeover talks had been made public. They said that the company had set out huge ambitions for the next decade and by selling early in that journey it would not maximise its returns.

The potential sale of Darktrace has reignited concerns over the UK losing star businesses to foreign ownership. Darren Jones, chairman of the business select committee, said it was a case of “another great British tech success story once again at risk of outgrowing Britain. This pattern of fundraising outside of the UK is not new. If ministers want to make the most of the UK tech economy, they need to fix this long-running problem.”

Several high-growth technology companies have emerged from Cambridge and grown under foreign ownership. One of the most notable, Arm Holdings, was taken over by SoftBank and now looks to list on the Nasdaq, New York’s technology-heavy stock exchange, rather than in London.

Thoma Bravo took Sophos, the former London-listed cybersecurity company, private in 2020 and is likely to relist it in the United States if it opts to go public again.

However, there could be advantages to the sale. According to the shareholder, who is close to the business, it would “wipe the slate clean” by removing the shareholding of Mike Lynch, the Autonomy founder who helped to establish Darktrace and is fighting extradition to the US on criminal fraud charges. His involvement, the shareholder said, continued to loom over Darktrace like “a spectre” and if it was bought it would no longer be a “Mike Lynch vehicle”. Losing the association, they said, could lead to a bounce in the share price.

Will Walker-Arnott, senior investment manager at Charles Stanley, said British companies looked good value to American buyers: “The US dollar is up around 10 per cent against sterling over the course of 2022, which makes the valuation of UK assets much more attractive to US suitors.”

Lawyers say it is likely that any sale of Darktrace to a foreign owner would be referred to the government for approval under the National Security and Investment Act, which came into force this year. Under UK takeover rules, Thoma Bravo has until September 12 to make a formal offer.

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