Shareholders have approved a CDN$1.8-billion buyout of Waterloo-based Magnet Forensics by U.S. private equity giant Thoma Bravo.
The deal, which still needs regulatory and court approval, would be the biggest exit in Waterloo Region tech history and comes less than two years after Magnet went public on the Toronto Stock Exchange.
Thoma Bravo plans to take Magnet private and merge it with another digital-investigations company, Grayshift LLC of Atlanta, Georgia.
As part of the takeover agreement, Magnet founder Jad Saliba and CEO Adam Belsher will each hold “critical leadership” positions in the combined company, and Magnet Board Chair Jim Balsillie will serve on the new board.
Thoma Bravo has not commented publicly about the future of Magnet’s Waterloo headquarters and employees. However, it has said that the two digital-investigation companies provide complementary products and services.
“The companies’ complementary offerings are expected to create a powerful end-to-end digital investigations platform empowering more public safety agencies around the world to seek justice, solve crimes, and protect victims,” according to the original announcement on Jan. 20.
Proponents of the buyout – including a special committee of the Magnet board – have been fending off a “vote no” campaign initiated in February by Nellore Capital Management of San Francisco, which owns about 10 per cent of Magnet’s subordinate voting shares.
Nellore argued that the offer of $44.25 for each subordinate-voting share was too low based on the company’s potential future value. It also criticized a component of the deal that allows Saliba, Belsher and Balsillie to roll a portion of their shares into the new company that will result from the merger of Magnet and Grayshift.
In a March 17 presentation, Magnet countered that the all-cash offer allowed shareholders to “crystallize” their investment “at an attractive valuation.” It noted that the offer of $44.25 per share was 15 per cent higher than the company’s share price on Jan. 19, the day before the proposed deal was announced, and 160 per cent higher than the IPO price of $17.00 back on May 3, 2021.
Two prominent proxy shareholder advising firms recently offered differing recommendations – one for the deal, the other against it.
Although Magnet’s controlling shareholders and the special board committee endorsed the takeover, the deal required two-thirds support of all shareholders and a majority of subordinate-voting shareholders.
Those requirements have now been met, the company says. According to a news release, 99.01 per cent of all votes cast were in favour of the buyout. Broken down by share class, 68.17 per cent of holders of subordinate voting shares voted in favour, compared to 100 per cent of holders of multi-voting shares.
The takeover arrangement requires a final order from the Ontario Superior Court of Justice, which Magnet expects to occur on March 27. Following regulatory approvals, the deal is expected to become effective in early April.
Magnet launched 11 years ago as JADsoftware Inc. after Saliba, a former Waterloo Region police constable, teamed up with Belsher, a former Research In Motion (later BlackBerry) executive.
Saliba, a cancer survivor and self-described computer geek, came up with a program that enabled investigators to retrieve digital evidence from hard drives. He initially gave the software away for free to police agencies, but worked with Belsher to turn it into a business when the value of the software became clear.
The company grew steadily over the past decade and its products have been lauded by law enforcement agencies around the world. In 2019, Saliba was the recipient of a Governor General’s Innovation Award.
In the spring of 2021, Magnet announced an initial public offering, one of many Canadian tech companies to take advantage of a then-hot investment climate. The IPO raised gross proceeds of CDN$115 million, and the company debuted on the TSX on May 3, 2021.