Valerie MedlevaTech companies have been dominating the IPO market so far in 2020. It seems like the famous cybersecurity business McAfee hopes that investor enthusiasm for the IT industry will extend to its initial public offering that is going to happen later this week.
But is another success story even possible now against the backdrop of the worsening Covid-19 crisis and the upcoming US Presidential elections? And if so, should you add this 30-year-old company into your portfolio right after the IPO, or should you steer clear of the stock and watch it perform for some time from the sidelines, before making any investment decisions?
In this article, we have gathered all the needed information to answer these questions and get you prepared for the much-awaited McAfee IPO.
McAfee, LLC: a well-established business with a long history
Founded in 1987 by John McAfee, McAfee, LLC is a California-based global computer security software company. The firm was incorporated in Delaware in 1992. In 1997, it formed Network Associates through a merger with Network General, Helix Software and PGP Corporation.
A major restructuring took place in 2004, with the company selling its Magic Solutions and Sniffer Technologies businesses. The firm changed its name back to McAfee to reflect its focus on security-related technologies.
In 2011, the business was acquired by Intel (INTC) for a record $7.68bn. The purchase was a part of Intel’s former CEO Paul Otellini’s plan to boost company value by adding more security to its processors. In 2014, it was announced that McAfee Security would be renamed to Intel Security.
However, Intel struggled to integrate the firm as the acquisition was never translated into practical applications. In 2016, it was reported that Intel had signed a deal to transfer a 51 per cent stake in the business to TPG for $1.1bn to convert Intel Security into a joint venture called McAfee. The transaction valued the spun-off company at $4.2bn, including debt. The deal was closed in April 2017, with Intel retaining a 49 per cent equity stake in the new entity and Thoma Bravo, an American private equity and growth capital firm, joining as a minority investor through an agreement with TPG.
Throughout its history, McAfee has acquired a number of smaller cybersecurity companies to broaden its portfolio of products and services. Some of its most prominent purchases include, among others, IntruVert Networks in 2003, SafeBoot Holding B.V. in 2007, Secure Computing in 2008, MX Logic in 2009, TunnelBear in 2018, Uplevel Security in 2019 and Light Point Security in 2020.
Today, the company is led by president and CEO Peter Leav, who previously held CEO positions at BMC Software and Polycom.
McAfee’s value proposition today: a cybersecurity giant standing at the forefront of the industry
For many years, McAfee has been a major player in the security market, offering software and services that do consistently well in diverse areas of the industry. In fact, the business claims to be one of the world's largest dedicated technology security firms.
The company’s product portfolio is rather extensive and includes anti-virus and anti-malware solutions for cloud, network and database security. To keep up with the rapidly developing market and offer cutting-edge software and services, throughout its history, McAfee has been continuously working on establishing strong partnerships with PC makers, as well as mobile and internet service providers.
McAfee’s security technologies use the predictive capability backed by McAfee Global Threat Intelligence, which allows users to stay one step ahead of the next wave of viruses, phishing, malware and other cyber threats.
The company provides its solutions to a wide range of clients worldwide, including retail consumers, small and large businesses, enterprises and governments. As of June 27, 2020, McAfee services protected more than 600m devices, with some of its largest customers coming from enterprise and government segments.
In its S-1 filing, the company stated: “We built our platform through a deep, rich history of innovation and have established a leading global brand.”
“Whether we are securing the digital experience of a consumer who is increasingly living life online, or defending many of the world’s largest enterprises and governments from sophisticated attacks and nation-wide threats, McAfee is singularly committed to one mission: to protect all things that matter through leading-edge cybersecurity.”
McAfee’s stable position will likely positively contribute to the company’s IPO value.
McAfee’s financial performance: is it ready to go public?
Over the last few years, the company has enjoyed steady revenue growth. In 2017, excluding the period from January 1 to April 3 when McAfee was still a part of Intel, its revenue stood at $1.490bn. The figure grew to $2.409bn in 2018 and $2.635bn in 2019.
This year, the coronavirus pandemic has led to stay-at-home orders and forced many people to work remotely. In such an environment, according to McAfee's report, the number of cyber threats surged 630 per cent from January 2020 to April 2020. The increase in the use of cloud services as a result of Covid-19 increased risk for enterprises, subsequently generating more sales for companies like McAfee.
For the 26 weeks ended June 27, 2020, the business reported revenue of $1.401bn.
In 2017, excluding the period from January 1 to April 3, the company’s net loss was $607m. It dropped to $512m in 2018 and $236m in 2019. In the first six months of 2020, McAfee finally generated a net profit of $31m.
As of June 27, 2020, the business had $7.813bn in total liabilities and $257m in cash.
But whether the company’s financial health impresses investors remains to be seen during the upcoming McAfee initial public offering.
McAfee IPO: everything you need to know
It is not the first time the company has gone public. According to McAfee IPO news dating back to 1999, the firm previously floated its stock under the ticker MCAF, selling 6.25m shares at $12 each and raising $75m. MCAF stopped trading in 2011 after the firm was acquired by Intel.
After almost a decade, McAfee is finally bringing its stock back to the US market.
Per the firm’s SEC filing, McAfee intends to sell 37 million shares, of which 30,982,558 will come from the company and 6,017,442 from existing stockholders. The business has set its McAfee IPO price in a range of $19 to $22 per share. At the top of that range, the company could raise up to $814m with its enterprise value soaring to $9.5bn.
McAfee also revealed how it plans to use the money raised: “Approximately $525m to repay all outstanding obligations with respect to our Second Lien Term Loan. A final payment, which we estimate will be $22m to pay certain affiliates of our Sponsors and Intel upon the termination of the Management Services Agreement which will terminate in connection with the completion of this offering. The remainder for working capital and other general corporate purposes, including the acquisition of, or investment in complementary products, technologies, solutions, or businesses, although we have no present commitments or agreements to enter into any acquisitions or investments.”
The company will list its shares on the Nasdaq under the ticker symbol “MCFE”. Goldman Sachs (GS), Morgan Stanley (MS), Citigroup (C), BofA Securities and TPG Capital will be among the lead underwriters.
The McAfee IPO date is set for Thursday, October 22.
The industry's outlook: bright future and fierce competition ahead
It seems like the MCFE IPO comes at the right time as the industry is on the rise. According to the Grand View Research’s report, the global market for cybersecurity software and services was worth $157bn in 2019. The figure is forecast to skyrocket past $300bn by 2027.
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The ever-evolving cyber threats and more complex consumer and enterprise software requirements and infrastructures are among the main drivers of the industry's growth. Moreover, the transition of corporate IT infrastructure from on-premises to the cloud will also open up new opportunities for new products and services.
In the meantime, the competition within the industry remains fierce. McAfee’s key rivals are, among others, Kaspersky, ESET, NortonLifelock (NLOK), Avast (AVST), Trend Micro (4704), Microsoft (MSFT), Palo Alto Networks (PANW), Sophos, and SentinelOne.
However, regardless of the saturated niche, McAfee has industry tailwinds in its favour as the market opportunity for security software and services is large and expected to grow at a rapid pace. And, given the company’s healthy growth trajectory, improving financial figures, promising market outlook and a quite hefty McAfee IPO valuation, its stock fairly deserves investor interest.
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