Sophos gears up for IPO on London Stock Exchange

In what could be the largest tech IPO in British history, Sophos is hoping it's third time lucky as it prepares to go public

In what could be the largest ever tech IPO in the UK, security vendor Sophos has announced that it is to take another crack at the London Stock Exchange.

The Oxfordshire-based group plans to raise $100m to reduce net debt, which currently stands at $318.8m or about 3 times cash EBITDA.

The company, which sells security solutions primarily via the channel, is aiming to float at least 25% of its shares and will offer investors an over-allotment option.

Sophos is expected to have a valuation on admission to the LSE in the region of £1-1.5bn. In the year to March 31, the firm generated sales of $476m, up 22.6% year-on-year. Cash EBITDA stood at $101.4m.

Financial highlights

For the year-ended 31 March (US$ millions) 2013 2014 2015
Billings 371.6 388.1 476.0
Revenue 361.6 378.8 446.7
Cost of sales (59.6) (65.6) (89.3)
Gross profit 302.0 313.2 357.4
Operating (loss)/profit (52.6) (9.7) 22.2
Net cash flow from operating activities - continuing operations 44.1 61.5 59.9
Adjusted EBITDA 82.0 87.7 72.1
Cash EBITDA 92.0 97.0 101.4
Unlevered Free Cash Flow 47.8 63.7 65.3


This isn’t the first time the plucky British company has considered going public. In 2007, it was forced to pull out at the last minute due to unfavourable market conditions caused by the financial crisis.

And then in 2009, an IPO was on the cards, but founders Peter Lammer and Jan Hruska opted to sell a majority stake to Apax instead.

The security business principally sells its products through a network of over 15,000 channel partners. Speaking on a conference call with analysts and press, CEO Kris Hagerman said that it would continue to aggressively pursue the mid-market.

“We are deploying innovating new solutions that have been designed from the ground up to deliver industrial strength security but in a way that is simple to use, simple to manage and simple to maintain. These are solutions that are custom designed for mid-market enterprises who just want security to work,” he said.

Sophos said that it intended to maintain and strengthen its channel-first roots.

“The Group intends to continue to deepen its relationships with existing partners and to grow its channel partner base to benefit from the end customer, industry, product and geographic knowledge and trusted, long-standing end customer relationships of these channel partners,” the company said in a statement.

Richard Holway of TechMarketView said that such a large IPO on the LSE would be hugely beneficial to the UK tech sector.

“IPOs create ecosystems,” Holway explained. “Where a company is HQed and listed is usually where its top management resides and its principal R&D is undertaken. It is where its main accountants, legal advisers, investors/investment banks, PR people…and even analysts are located.”

“In a Catch 22 situation, companies choose to IPO because of that ecosystem. So maybe Sophos will be the IPO that reverses the trend? Maybe, just maybe, we will see a reversal of the IPO tide in favour of the UK.”

The IT security market was estimated to be worth $32.6bn in 2014 and is forecasted to grow 7.0% per annum until at least 2018. The mid-market represents $18.0bn or 72% of the total pie.

“Our team has delivered a consistent record of returns and we see further potential for strong growth both in the UK and internationally,” said Hagerman. “Bringing Sophos to the public markets will enable us to access capital, improve our global brand and enhance our ability to enable enterprises around the world, of any size, to deploy a simple and effective security solution.”

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