Magnet shares independent advisor report recommending $1.8 billion acquisition as some shareholders push to halt deal

One of Magnet’s largest investors says $1.8 billion price tag “simply too low.”

As the battle to stop Magnet Forensics$1.8 billion CAD sale rages on, an independent advisor has recommended shareholders vote for the deal, according to Magnet.

The Waterloo startup released a statement on Wednesday noting that Egan-Jones Proxy Services, which worked as an independent proxy advisor reviewing the deal, has recommended it gets approved.

“We believe that the dissident shareholder has not offered a superior alternative that will maximize value creation.”

The announcement from Magnet follows a public campaign by one of Magnet’s largest investors, Nellore Capital Management, against the company’s proposed sale to Thoma Bravo.

Other Magnet shareholders have also reportedly joined Nellore’s efforts to halt the deal. According to The Globe and Mail, four North American investment managers are not happy with the proposed deal, with three stating they will vote against it.

Shortly after Magnet published Egan-Jones’ recommendation, Nellore published a letter to shareholders calling the deal “insultingly low.”

Nellore also shared data it claims to have collected from publicly available sources that shows Thoma Bravo’s proposal to buy Magnet represents one of the lowest deals the private equity firm has ever offered.

“Somehow, Thoma Bravo has negotiated a transaction where it is offering the lowest premium for the asset with the highest rate of future return,” Nellore wrote. The shareholder also argued that Magnet’s special committee on the acquisition “intentionally omitted” the data it shared.

The recommendation from the independent advisor and additional pushback comes ahead of the March 23 shareholders’ meeting regarding the proposed deal.

Thoma Bravo announced plans in January to buy Magnet for $1.8 billion CAD. It is a deal that would take the publicly-traded Magnet private, and combine it with Thoma Bravo-owned digital forensics firm Grayshift.

Nellore announced on February 9 that it opposes the acquisition by American private equity giant Thoma Bravo on the grounds that the current price tag undervalues Magnet. In response, independent Magnet directors published their own statement defending the deal, arguing that the acquisition as outlined comes at a quality price following a competitive process, and offers the best path forward for Magnet.

Thoma Bravo has agreed to pay $44.25 per share to holders of Magnet’s subordinate voting stock, an amount that came at a more than 15 percent premium to Magnet’s closing price the day before the deal was announced.

In its shareholder letter on Wednesday, Nellore argued that the premium “can’t even compete with 5 months of Magnet’s standalone growth.” The Magnet investor said it believes the “intrinsic value” of the shares is between $60 and $70 CAD.

Regarding its recommendation to vote for the deal, Egan-Jones stated, “the fact that upon the announcement of the transaction, the Company’s share price and implied multiples increased, signal that the acquisition is well-perceived by the shareholders, investors and market as a whole.”

RELATED: Fight brews over Magnet Forensics’ proposed $1.8 billion acquisition by Thoma Bravo

The advisor also said the transaction “will address the challenges relating to Magnet’s limited mobile extraction capabilities.” Magnet is viewed as a leading provider of search tools focused on computers and digital, but frequently partnered with Grayshift (now owned by Thoma Bravo) for help with extracting data from mobile devices.

As reported by The Globe, Magnet had considered buying Grayshift in late 2021 to increase its mobile expertise but lost out to Thoma Bravo’s bid. Now, Thoma Bravo is looking to purchase Magnet to combine it with Grayshift.

Nellore owns 1.2 million subordinate voting shares in Magnet, approximately 10 percent of the class, and has called the proposed $1.8 billion CAD purchase price “simply too low.” Magnet’s independent special committee, which was formed following receipt of Thoma Bravo’s offer and consists of independent Magnet directors Carol Leaman and Jerome Pickett, oversaw the negotiation process and disagrees with Nellore’s argument.

Nellore has said it would rather see Thoma Bravo buy into Magnet via a private placement of 13.2 million shares and merge Grayshift into the existing Magnet entity.

“We believe that the dissident shareholder has not offered a superior alternative that will maximize value creation,” were Egan-Jones’ comments, according to Magnet’s statement on the independent advisor report.

Feature image courtesy Magnet Forensics.

Meagan Simpson

Meagan Simpson

Meagan is the Senior Editor for BetaKit. A tech writer that is super proud to showcase the Canadian tech scene. Background in almost every type of journalism from sports to politics. Podcast and Harry Potter nerd, photographer and crazy cat lady.

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