Thales acquires Imperva for $3.6 billion

Thales has reached an agreement with Thoma Bravo for the acquisition of 100% of Imperva for an enterprise value of $3.6 billion.

With this acquisition, Thales is taking its cybersecurity business to the next level. Imperva will enable growth in data security and Thales’ entry into the attractive application security market. Thales total cybersecurity business will generate more than € 2.4 billion revenues. The transaction price is based on a $3.6 billion enterprise value.

Significant value creation for Thales shareholders:

• $110 million of run rate cost and revenue synergies
• Financial profile of DIS segment enhanced
• Significant medium-term adjusted EPS accretion
• Transaction adjusted ROCE above WACC in Year 5 post-closing

Imperva’s integration into Thales will significantly expand Thales’ addressable market in an already fast-growing sector.

The new financial targets set for Thales’ Digital Identity and Security (DIS) activity are:

• 2024-2027 organic sales growth: +6 to +7%,
• 2027 EBIT margin to reach 16.5%.

The acquisition is in line with Thales’ disciplined capital deployment framework, with no impact on the Group existing dividend policy or ongoing share buyback programme. Closing of the transaction is expected by the beginning of 2024, upon completion of customary anti-trust and regulatory approvals.

“The acquisition of Imperva marks a major milestone in Thales’ cybersecurity strategy. With this acquisition, we are seizing a unique opportunity to accelerate our cybersecurity capabilities and are taking an important step towards our ambition to build a world-class global cybersecurity integrated player, providing a comprehensive portfolio of products and services. We have tremendous respect for Imperva’s innovative application and data security offerings. Imperva and Thales share the same vision and the same DNA. We are thrilled to enter the next phase of our growth together. We look forward to welcoming Imperva to Thales to further enhance our cybersecurity solutions, and help customers address their most important digital security challenges,” said Patrice Caine, CEO, Thales.

Pam Murphy, CEO, Imperva, commented: “Today’s announcement represents an exciting new chapter for Imperva, one that will further our mission to help organizations protect data and all paths to it, bring better protection and strategic value to our customers and partners, and create more opportunities for our team members. We admire Thales’ vision and culture, and believe that, together, we can deliver greater product innovation and efficiency through disruptive solutions, while helping to simplify the greatest security challenges facing organizations today: protecting digital identities, applications, APIs, and data in any environment, and any industry.”

Acquisition of a significant player in application and data security

With over half a billion dollars in revenue on a TTM (trailing twelve months) in 2022, basis and over 1,400 employees, Imperva is a cybersecurity leader that protects critical applications, APIs and data anywhere at scale. With an integrated approach combining edge, application security and data security, Imperva protects companies through all stages of their digital journey.

Headquartered in San Mateo, California, the company has a global footprint in the Americas, Asia Pacific and Europe-Middle East and Africa, and monitors threats across 180 countries. Its portfolio combines expertise and products in the fast-growing application and data security markets:

Application security: Imperva offers an Web Application Firewall (WAF), which prevents attacks by analysing web traffic to applications. Imperva’s Application Security portfolio includes industry-leading API Security, Advanced Bot Protection and DDoS.

Data security advanced offering: Imperva’s Data Security platform helps enhance the visibility of a company’s data, in order to prevent breach and avoid compliance issues. It provides Data Discovery and Classification on both structured and unstructured data, Data Security Governance, Data Access Monitoring, risk analysis powered by AI, real time risk monitoring and intrusion detection on databases, on premise and in the cloud.

Imperva has a highly recurring revenue business model and a large and diversified customer base. It serves approximately 35% of Fortune 100 companies and some of the largest groups in financial services, telecommunications, energy, healthcare, retail and e-commerce.

Imperva also demonstrates an attractive financial profile, with double-digit sales growth and ~20% EBIT margin forecasted by 2027, in line with Thales global cybersecurity product business.

“Imperva is a leading force in cybersecurity with an impressive track record of providing cutting edge security solutions and protecting customers through all stages of their digital transformation, from the application level down to the data level. Over the course of our more than four years of partnership, Imperva further differentiated itself in the competitive cybersecurity market through accelerated growth and innovation and with its unique approach to end-to-end application and data security,” Seth Boro, said Managing Partner at Thoma Bravo.

“During this time, the company successfully executed three acquisitions which strengthened its product offerings and capabilities to better protect clients’ critical data and applications. We are proud of what we built through our partnership with Pam Murphy and the Imperva team, and look forward to watching the company’s continued success as part of Thales’ innovative and diverse security portfolio,” added Boro.

Highly complementary combination

With this acquisition, Thales will add circa $500 million of revenue and significantly expand its data and application security offering. The combination of Thales and Imperva’s operations will create a world-class global cybersecurity portfolio structured around 3 product areas:

• Identity (Thales),
• Data security (Thales and Imperva)
• Application security (Imperva).

Thales and Imperva will combine their respective strengths. Increased capabilities are notably expected in the fields of protecting data at rest and data in use, complementing Thales’ know-how in data in motion.

Imperva and Thales will also benefit from their strong complementarity and cultural fit in terms of clients and addressable markets. The combination is expected to yield significant commercial opportunities within the existing client base as well as revenue synergies in the years ahead.

Thales estimates that the combination will generate c.$110 million of pre-tax run-rate synergies, including $50 million of cost synergies and $60 million linked to revenue synergies.

Thales’ step-change in cybersecurity

Cybersecurity represents a priority market for Thales. It is both a critical enabler for its other activities and a long-term fast-growing and technology-driven market where Thales can bring unique know-how.

As a global leader in cybersecurity, Thales is involved at every level of the cyber value chain: Identity, Protect, Detect, Respond, Recover.

Thales’ offer is focused on three families of cybersecurity products and services:

• Global security products around the CipherTrust Data Security Platform, the SafeNet Trusted Access Identity & Access Management as a service solution, and the broader cloud protection & licensing offerings. Imperva will be part of this business.
• Sovereign protection products including encryptors and sensors to protect governmental, and institutional critical information systems.
• A complete suite of cybersecurity services around Cybels solutions portfolio, including threat and risk evaluation, training and simulation, detection and response, and integration projects.

As part of its strategy, Thales has significantly increased its focus on cybersecurity over the past years, expanding its footprint and offering in order to achieve critical mass. After the recent Group offer for Tesserent and the completed acquisitions of S21sec & Excellium and OneWelcome, this new acquisition, subject to regulatory approvals, takes Thales’ cybersecurity business to the next level.

New enhanced profile for DIS

In this growth context and subject to forthcoming social processes, Thales plans to regroup as of January 1st 2024 all its civil cyber activities (currently split between its Digital Identity & Security (DIS) and Defense & Security operating segments) within DIS. This will further strengthen DIS’ position as a go-to player for civil cybersecurity products and solutions, and facilitate the capture of synergies within the full portfolio.

Pro forma, following the acquisitions of Imperva and Tesserent, global cybersecurity products,and services will hence represent 44% of Thales Digital Identity & Security segment sales in 2024, addressing a $36 Bn Total Adressable Market, representing a 60% increase compared to the previous situation.

This acquisition allows the Group to set new financial targets for DIS. Over the 2024-2027 period, DIS sales are now expected to grow annually by 6-7% on an organic basis, to reach a level of sales that will be between €5.4 to €5.5 Bn in 2027. Its EBIT margin should reach 16.5%5 by the same horizon.

Value creative transaction for shareholders

Given Imperva’s very attractive business model, the transaction will be immediately accretive to Thales’ growth and margin profile.

The acquisition price represents a 6.1x 2024 EV / revenue multiple, in line with precedent transactions and trading multiples of cybersecurity peers with similar profitable financial profile. It corresponds to an implied 17x 2024 EBIT multiple post run-rate synergies and a 13x 2027 EBIT multiple post run-rate synergies.

Following the transaction, Thales expects to maintain its solid investment grade profile, with a pro forma 2024 leverage ratio of ~0.7x, in line with the Group’s disciplined capital deployment strategy.

Thales confirms its attractive capital allocation policy with a target dividend pay-out ratio of 40%, in line with previous years, and the continuation of its ongoing share buy-back program.

The closing of the transaction is expected by the beginning of 2024, subject to the completion of customary anti-trust and regulatory approvals.