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Darktrace cuts IPO valuation as it seeks to avoid Deliveroo repeat

The cybersecurity company Darktrace is cutting the value of its imminent London flotation as it adopts a cautious approach aimed at avoiding a repetition of Deliveroo’s disastrous public debut.

Sky News has learnt that Darktrace and its advisers are leaning towards a price range that will put a valuation of between £2.4bn and £2.7bn on the loss-making company.

Banking sources said the details were likely to be set out in an announcement to the London Stock Exchange that could come as soon as Monday morning.

The reduced price range reflects a determination on Darktrace’s part to see a successful after-market performance for its shares, according to people close to the situation.

Until recent weeks, the company had been expected to seek a valuation of as much as $5bn (£3.6bn).

The decision to publish a lower-than-anticipated range in part reflects the repercussions of Deliveroo’s calamitous initial public offering (IPO) last month, with its shares slumping by more than a quarter on their first day of trading.

Darktrace is also electing to take a more cautious approach because of what one adviser described as “noise” relating to its links to Mike Lynch, the company’s first investor.

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Mr Lynch, who backed the cybersecurity company through Invoke Capital, is battling extradition to the US over the sale of software company Autonomy Corporation to Hewlett Packard in 2011.

Even at a £2.4bn-£2.7bn valuation, Darktrace’s IPO will crystallise a multimillion pound stake for Poppy Gustafsson, ts 38 year-old chief executive.

Mike Lynch leaves the Rolls Building in London following the civil case over his ..8.4 billion sale of his software firm Autonomy to Hewlett-Packard in 2011. PRESS ASSOCIATION Photo. Picture date: Monday March 25, 2019. On Friday US prosecutors added three new criminal charges to their indictment against Mr Lynch. See PA story COURTS Autonomy. Photo credit should read: Dominic Lipinski/PA Wire
Image: Mike Lynch, the billionaire founder of software company Autonomy and the first shareholder in Darktrace

The listing will provide another acid test of investors’ appetite to embrace technology company flotations in London.

Founded in Cambridge in 2013, the IPO is likely to involve the sale of about £250m of new and existing shares in the company.

Darktrace has had a rocky journey towards a public listing, with UBS resigning as one of the sponsors of its IPO amid concerns about Mr Lynch.

People close to the situation attributed UBS’s decision, however, to anxiety within the Swiss bank over a Dutch court’s decision that Ralph Hamers, its new chief executive, should face investigation into a money-laundering scandal at ING, his former employer.

The cybersecurity company, which helps clients identify intruders within their computer systems, will, unlike Deliveroo, not have a dual-class share structure – one of the factors cited in investors’ lacklustre response to Deliveroo.

Darktrace has appointed a number of political and industry veterans to its board, including Lord Willetts, the former science minister, and Sir Peter Bonfield, the former BT Group boss.

Its new chairman, Gordon Hurst, also chairs Featurespace, another Invoke-backed company.

Deliveroo riders are to be rewarded with cash payouts of up to £10,000 on the day of the listing. Pic: AP
Image: Deliveroo made a disastrous debut on the LSE. Pic: AP

Jefferies is leading the flotation, with Berenberg and KKR Capital Markets – a division of KKR, the private equity firm which is one of Darktrace’s largest shareholders – also in the equity syndicate.

Some banks had questioned their ability to participate in the Darktrace IPO because Sushovan Hussain, the former Autonomy finance chief and a Darktrace shareholder, was sentenced to five years in a US prison for fraud in May 2019.

Although Invoke remains Darktrace’s biggest shareholder, the company insists that Mr Lynch has no direct involvement with it other than as a shareholder.

Darktrace insiders say they are “proud” of Mr Lynch’s role in helping to build the company and that it is not seeking to distance itself from the entrepreneur.

Mr Lynch stepped down from the Darktrace board in 2018.

Darktrace has established itself as an international leader in the provision of artificial intelligence (AI) cybersecurity services to corporate customers.

Ms Gustafsson is herself a former Autonomy colleague of Mr Lynch and now an adviser to Boris Johnson.

The company recently said it had passed $1bn in “cumulative bookings”, suggesting that its order-book has been substantially boosted by the coronavirus-inspired switch to remote working for millions of employees of multinational companies.

Growing demand for its products has underpinned some of its investors’ appetite to buy more Darktrace stock, with recent cyberattacks on companies such as easyJet and Honda again reinforcing the extent to which the security of multinationals’ networks and data is now a fixture on boardroom agendas.

Darktrace employs 1500 people, and operates from 44 offices, with dual headquarters in Cambridge and San Francisco.

Its blue-chip corporate customers have included AIG, BT Group, Jimmy Choo, the Science Museum Group and William Hill.

Other British unicorns, including the payments app Wise, are also lining up to float in the wake of a review by the former EU commissioner Lord Hill.

He recommended easing London’s listing rules to encourage more tech companies to go public in the UK.

Darktrace declined to comment on Sunday.