Sophos looks to raise £100m in London IPO for US expansion

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The Independent Online

Sophos, one of the world's largest IT security software developers, is planning to raise £100m via a listing on the London Stock Exchange, a move that will increase its profile and raise funds to pursue growth in the key North American market.

Sophos, which provides software that protects its customers from hacking, viruses and spam attacks, is the latest company to test the UK market's appetite for technology stocks following the spectacular performance of data centre business Telecity since it re-listed its shares late last month.

Sophos, which was founded in 1987 in Oxford, is set for a valuation of between £300m and £500m via the intended flotation on London's main market. Almost all of the £100m is expected to be a secondary offer as the company founders and existing shareholders look to realise value from their holdings.

Sophos derives its revenue from subscriptions which are paid upfront meaning it has a high level of revenue visibility. The company books the revenue over the life of the contract, which is typically 30 months in length, and incurs all of its costs upfront. It is highly cash generative and has a strong balance sheet, growing its free cash-flow over 70 per cent in the first half of the year.

Sophos, which has 650,000 customers across 125 countries, had billings of $167m last year. It counts the likes of Vodafone, Lockheed Martin and Marks & Spencer amongst its clients and recently won a deal with GE to provide IT security for 350,000 computers. Its also thought to provide security for Google's Gmail consumer email service. Sophos, which only sells to business customers, believes it protects around 100 million end-users around the world.

But Sophos is dwarved by the giants of the sector – Symantec, McAfee and Trend Micro. It has a market share of around five per cent, compared to Symantec's near-40 per cent. The company is confident that its 'Endpoint Security and Control' product, which protects the customer from viruses and hackers by securing the device rather than just the corporate network, will help it grow market share in the US.

Deutsche Bank, Morgan Stanley and UBS are acting as joint book runners for the flotation.

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