Sophos duo set to make $300m in buy-out

The two co-founders of Sophos, an Oxfordshire-based anti-virus software maker, are set to make about $300m (£197m) after Apax Partners, the private equity group, agreed to buy a majority stake in the company they founded 25 years ago.

Jan Hruska and Peter Lammer, who created Sophos in 1985 after meeting as engineering students at Oxford University, are selling a large part of their combined 60 per cent of the company in a deal to be announced on Tuesday valuing it at $830m.

Sophos is headquartered in Abingdon but it competes with bigger US rivals such as Symantec and McAfee in selling software that protects computers against security risks such as hackers, viruses and spam e-mails.

The company had been in talks with banks about launching an initial public offering in New York when it was approached by Apax this year about a buy-out.

An earlier IPO attempt had to be abandoned in 2007 when the financial crisis started.

TA Associates, the private equity group, took a 20 per cent stake in Sophos in 2002, which it is selling to Apax as part of the deal.

Talks were continuing on Monday with Investcorp, the Bahrain investment bank, on how much of its 10 per cent stake it sells.

Mr Hruska and Mr Lammer ceded operational control of the company several years ago, but they will remain involved as non-executive directors and keep a big minority stake after Apax takes over. Steve Munford will remain chief executive.

The $3.1bn endpoint security software market is growing about 9 per cent a year, according to IDC, as people and companies spend more to protect their increasingly valuable and complex IT systems.

Unlike its bigger US rivals, Sophos does not provide software for domestic computer users, only companies.

It specialises in small- and medium-sized enterprises, but has won some big name clients, such as General Electric, Tesco, Hilton and Toshiba.

In the year to March 2009, its last set of audited accounts, Sophos increased its billings by 54 per cent to £163.5m, but made a net loss of £15.4m.

However, anti-virus software companies book costs upfront and recognise revenues over the lifetime of their licences, so they are typically valued on the basis of net cash flow, which for Sophos was about £37m in the year to March 2010, up from £26.7m in the previous year. A third of its sales are in the US and a 10th are in Asia.

Apax is buying about 70 per cent of the company’s equity and is using debt to finance a third of the deal. It plans to continue the company’s strategy of growing through acquisitions, such as its takeover of Utimaco Safeware in Germany two years ago.

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