Cybersecurity firm SentinelOne Inc (S.N), boasting a market value of approximately $5 billion, has initiated exploratory actions, including the possibility of a sale, according to individuals familiar with the matter.
The California-based company, headquartered in Mountain View, has found itself as a takeover target due to an 80% decline in its share value over the past two years. During the COVID-19 pandemic, it had witnessed a surge in technology spending driven by remote work, which subsided as companies curtailed their IT budgets amid a slower economy.
SentinelOne has enlisted the services of investment bank Qatalyst Partners to facilitate discussions with potential acquirers, including private equity firms, as per sources.
Initial expressions of interest fell short of meeting SentinelOne’s valuation expectations, leading to the possibility that discussions might conclude without a deal, a source stated. The sources did not specify the price range that SentinelOne had been aiming for.
Both SentinelOne and Qatalyst spokespeople did not respond immediately to requests for comment.
The news of these developments prompted a 19% surge in SentinelOne’s shares, which reached $17.19 in afternoon trading in New York on Monday.
Founded in Israel in 2013, SentinelOne protects laptops and mobile devices from security breaches by utilizing artificial intelligence to identify unusual behavior within enterprise networks. It competes with CrowdStrike Holdings Inc (CRWD.O) and boasts customers ranging from prominent corporations to the U.S. government.
Third Point
Backed by investors such as Daniel Loeb’s hedge fund Third Point, as well as venture capital firms Tiger Global and Sequoia Capital, SentinelOne made its debut on the U.S. stock market in 2021, achieving an $8.9 billion valuation.
However, the company’s journey from anticipation to disillusionment occurred as it struggled to achieve profitability while maintaining low prices to secure market share. In June, SentinelOne acknowledged that it had overstated its annual recurring revenue due to a “change in methodology and the correction of historical inaccuracies.”
In its most recent quarterly earnings report, SentinelOne revised down its guidance for annual revenue growth and announced plans to lay off around 5% of its workforce.
Morgan Stanley analysts indicated in a June note that SentinelOne’s stock held potential upside due to its substantial discount in comparison to its competitors.
“While recent execution missteps have shaken investor confidence, we think the intrinsic value of the asset is much higher than the market ascribes and see a compelling risk-reward with valuation now at a 50% discount to peers on a growth-adjusted enterprise value/sales basis,” the Morgan Stanley analysts noted.
Insight Partners, a private equity firm, maintained control over 47.7% of SentinelOne’s voting shares as of the end of April, facilitated by a dual-class share structure adopted by the company. Redpoint Ventures, another investor, held 22.9% of the voting shares.
Within the cybersecurity sector, private equity firms have been notably active. In November 2021, an investor consortium led by private equity firm Advent International acquired McAfee Corp for $14 billion. Tech-focused private equity firm Thoma Bravo has also been a significant acquirer in the sector, making purchases such as Ping Identity, ForgeRock, Sailpoint Technologies, and Magnet Forensics Inc.