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Sophos CEO: Faster Growth Expected Under Thoma Bravo Ownership

Sophos' MSP business grew more than 75% year over year last quarter.

Edward Gately

March 2, 2020

9 Min Read

Thoma Bravo‘s nearly $4 billion acquisition of cybersecurity giant Sophos is now complete and the company is ready to gain even more ground on rivals such as McAfee and CrowdStrike in endpoint, and Palo Alto Networks and Fortinet in next-gen firewall.

Thoma Bravo, the private equity firm, has acquired more than 200 software and technology companies representing more than $50 billion of value. Among the firm’s acquisitions are Imperva, Veracode and Barracuda Networks, and a stake in McAfee.

Most recently, Sophos introduced a new Xstream architecture for its XG Firewall with transport layer security (TLS) traffic decryption capabilities designed to eliminate security risk associated with encrypted network traffic.

XG Firewall now also features AI-enhanced threat analysis from SophosLabs and accelerated application performance.

In a Q&A with Channel Futures, Kris Hagerman, Sophos’ CEO, talks about what the acquisition will mean for his company and what partners can expect in the coming months.

Channel Futures: With the acquisition completed, what’s next in the process?

Kris Hagerman: Well, we continue to grow and succeed as a company. We’re now going to be no longer listed on the London Stock Exchange as a publicly traded company and will become a private company with Thoma Bravo as our sole investor. And we’re just very excited to start this next chapter. We’ve had a really good run over the last few years. We feel like we’re on a real roll right now and we think working with Thoma Bravo will only help accelerate that.

CF: What will this acquisition mean for Sophos’ partners? Will it create new opportunities for them?


Sophos’ Kris Hagerman

KH: Yes, and I mean that fundamentally. Let’s start with the basics. Sophos is committed to our channel first and channel is our best go-to-market strategy. This strategy is a big part of what has driven our success and that will continue. And Thoma Bravo sees an exciting opportunity to continue to aggressively grow Sophos, both organically and inorganically, and so do we. And with Thoma Bravo’s guidance and support and investment, we believe we can accelerate the next-gen transition we already have well underway and get to the future faster, which has benefits for our customers, our partners and for Sophos as a whole.

If you think about where we are at the moment, we’ve been driving this quite exciting transition to become a true next-gen security leader, and as of the last quarter, we now have over 60% of our business in this next-gen product portfolio – which is all of our most advanced products – all managed in Sophos Central, which is our cloud-based management platform, and that next-gen business was not only 60% of our total business, but it grew over 40% year over year in the last quarter. So we think that we’re on a very nice trajectory and with the help of Thoma Bravo, we fully expect …

… that will only continue. And we can find ways to expand it even further, and that presents great opportunities for Sophos and for our channel.

CF: How will this acquisition impact Sophos’ strategy going forward?

KH: Well, we’re growing pretty well already. We’re now one of the largest and fastest-growing next-gen security businesses in the world, with over a $500 million dollar annual run rate, growing it over 40%. We grew the company overall 9% in [the first quarter], we grew 9% in [the second quarter] and we’ll grow even faster than that in [the third quarter]. Our MSP business grew over 75% year over year in the last quarter, so we’re already growing quite nicely. And if you look at the trajectory that we’ve been on for the last few years, you know it’s pretty extraordinary. I got to Sophos about seven years ago and we’ve had a chance during that period to grow our billings from about $350 million to over $830 million, and a rough estimate for this year from roughly 150,000 customers to over 420,000 customers. And we’ve grown the equity value of the company during that period, from about $615 million to $3.9 billion. And our expectation is that working closely with Thoma Bravo and taking advantage of the experience that they have with so many other leading software companies and security companies, and all the best practices that they’ve learned over time, that we think we can grow the top line and the bottom line of the company aggressively, both organically and inorganically.

CF: Does going private alone present benefits to Sophos?

KH: Yes, I think probably the most significant one is that we have the ability to take this transition that were already driving  … and we can accelerate that transition and get to the future faster. And we can do that because, No. 1, Thoma Bravo has seen a lot of other companies that had been driving similar transitions, so they know how to do that. But the second part is that because they have a bit of a longer-term investment profile than, say, public market investors who were really focused on a quarterly results, Thoma Bravo has a bit of a longer-term outlook and so they’re really looking for significant steps we can take to accelerate the business overall, and they’re willing to be patient for that to take a quarter or two, or a few quarters to see a full ROI from it.

CF: Will there be any integration/consolidation with other cybersecurity companies acquired by Thoma Bravo?

KH: I don’t think so. I mean, one of the things that Thoma Bravo made clear in their filing with it as part of the U.K. takeover process is that they expect to run Sophos as an independent entity and that they don’t have any intentions to combine it with any other Thoma Bravo assets. And you also need to remember that this is quite a large transaction for Thoma Bravo. In fact, it’s the largest equity check they’ve ever written for a company in the 30-year history of the firm. The deal was about $3.9 billion, and roughly about half of that was in equity, so that’s a very substantial financial commitment. So their fundamental desire and their fundamental goal is to really drive the growth and success of Sophos as an independent entity, and I think that’s how they see all the companies in their portfolio. It’s fundamentally focused on how they make those individual investments successful. So to the extent that there may be opportunities to have strategic discussions with other companies in the Thoma Bravo portfolio, of course they’re happy to support those. But it’s a big market, it’s a large customer set that’s open as an opportunity, and so the fundamental drive will be to …

… deliver on our standalone independent entity success.

CF: Will this acquisition give Sophos and its partners a competitive advantage?

KH: I think what it gives Sophos is an incredible endorsement from arguably the leading software investor in private equity and almost certainly the leading cybersecurity investor in private equity in the world. So No. 1, it’s a great endorsement. No. 2, we now have access to a lot of capital and a lot of experience in best practices as we look to grow and expand Sophos going forward and to really drive the next phase of growth and success for the company. So I think we’re looking to take a strategy and a mission, and that product portfolio that is really already working, and to accelerate that even further — and that’s good news for Sophos, it’s good news for our customer and it’s good news for our partners.

CF: How will this impact Sophos’ positioning in the competitive cybersecurity landscape? Can we expect to see some sort of shake-up there?

KH: Our view is that we believe Sophos will continue to grow well past the growth rate of the industry as a whole. So we expect to continue to gain share and to do that by delivering great products in the endpoint and in next-gen firewall where we just announced the most significant new firewall release in our history.

Our view is that we built a really solid foundation. We’re already seeing a lot of growth and momentum coming from the investments that we’ve made, and this is a great opportunity to accelerate that progress even further.

CF: Who are your biggest rivals out there in the market and what does this acquisition potentially say to them?

KH: There are two core markets we’re in, in endpoint security and next-gen firewall. So in endpoint, it’s really Symantec, McAfee and CrowdStrike, and in the firewall it’s really Palo Alto Networks and Fortinet, and Sophos has been growing at a rate that exceeds the overall industry growth rate. And we continue to grow our customer base, to grow our partner base, and we continue to deliver highly innovative products that deliver enterprise-grade security that at the same time are usable, accessible and intuitive, such that they can be used and managed by organizations of any size. That’s really what makes us different. That’s what’s allowed us to grow at such a high rate over the last five to seven years, and that’s what we believe will position us to accelerate that growth even further as we look ahead.

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About the Author(s)

Edward Gately

Senior News Editor, Channel Futures

As news editor, Edward Gately covers cybersecurity, new channel programs and program changes, M&A and other IT channel trends. Prior to Informa, he spent 26 years as a newspaper journalist in Texas, Louisiana and Arizona.

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