Five years after taking Proofpoint private, Thoma Bravo is funding the platform's purchase of Varonis with new equity, committed debt and a pension-fund co-investor, at about 53 times Varonis's trailing free cash flow.
Private equity firms are under pressure to sell companies and return cash to their investors. Thoma Bravo's latest move with one of its largest holdings goes the other way.
Proofpoint, the cybersecurity company Thoma Bravo took private in 2021, agreed on Thursday to acquire Nasdaq-listed Varonis Systems for $49.75 a share in cash, in a transaction the companies value at about $6.3 billion. Rather than preparing Proofpoint for an exit, its owner is making it substantially bigger.
How it is paid for
The money is lined up. Thoma Bravo has committed the equity, and lenders have committed the debt. Ontario Teachers' Pension Plan "has agreed to make an investment into Proofpoint in connection with the transaction." The companies did not disclose the size of the debt, the lenders, the Thoma Bravo fund supplying the equity, or the size of Ontario Teachers' check.
The structure is a familiar one in private equity, known as buy-and-build: a sponsor uses an owned company as the platform for acquisitions, adding scale before an eventual sale. What stands out is the size of the add-on and the timing. A take-private of more than $5 billion, financed with fresh fund equity, a co-investor and committed debt, came together in a week when lenders were charging steep premiums for other technology credit, including the debt of AI cloud providers.
The price
The terms are rich by most measures. The deal values Varonis at about 8.4 times its revenue over the 12 months to June 30, on an enterprise-value basis, and about 53 times its trailing free cash flow, measured against market capitalization, according to the companies. Measured against Varonis's $32.71 close on June 22, before talk of a sale surfaced, the offer is 52% higher; against the $42.35 close on Sept. 1 it is 17% higher.
Varonis's board approved the deal unanimously after a review led by a committee of independent directors, with what Chief Executive Yaki Faitelson called "extensive outreach to a range of potential strategic and financial buyers." Varonis was reported in June to be exploring a sale after preliminary interest from firms including Blackstone, Thoma Bravo and Vista Equity Partners, and in September to be in talks with Proofpoint.
Closing, targeted for the first half of 2027, depends on a Varonis shareholder vote and regulators. The merger agreement sets a $211.7 million fee if Varonis walks away for a better offer and a $423.3 million reverse fee payable by Proofpoint in specified circumstances, with no financing condition. Varonis traded at $48.67 in early afternoon Friday, about 2.2% below the offer.
What it means for the fund
For Thoma Bravo's investors, the deal changes the shape of the Proofpoint investment. A larger, combined data-security company could be easier to sell or list later, and at a higher valuation. It also means more capital committed, more leverage added and a longer holding period before the investment returns cash.
Market implications
One reading is that lenders are separating software that throws off cash from speculative AI infrastructure. A sponsor, a major pension fund and unnamed lenders were willing to commit to a $6.3 billion purchase of a company that is free-cash-flow positive, though it has posted losses on a GAAP basis.
A second reading is that the price and the structure raise the bar for an exit. At about 53 times free cash flow, with more debt layered onto a company bought in 2021, Thoma Bravo now needs a higher exit valuation, and more time, to make the investment pay.
What to watch
Varonis's proxy filing, which will detail the background of the sale and how many bidders took part, any launch of the debt financing that reveals its size and lenders, regulatory approvals, and any competing bid before the shareholder vote.