Kurs & Likviditet
|2023-03-24||Ordinarie utdelning FSECURE 0.07 EUR|
|Lista||Mid Cap Helsinki|
F-Secure Corporation | Inside Information | April 26, 2023 at 07:00:00 EEST
Inside information: F-Secure to acquire the mobile consumer security business of Lookout Inc. and updates its medium-term financial targets
- F-Secure to acquire the mobile consumer security business unit from Lookout Inc.
- Combined company to have significantly increased scale, strengthened footprint in the US and in the communication service provider channel as well as a complementary mobile optimized software product portfolio reaching tens of millions of subscribers worldwide.
- Enterprise value of USD 223 million (approx. EUR 202 million ), representing a multiple of 15.7x EBITA FY 01/2023  and 9.0x EBITA FY 01/2023 including full impact of expected annual synergies in 2027 .
- Combined company to have illustrative combined revenue of EUR 146.9 million and EUR 57.4 million in adjusted EBITA in 2022.
- Transaction expected to deliver at least EUR 12 million of revenue synergies and incremental EBITA level synergies of EUR 10 million per annum in 2027.
- Transaction is projected to be significantly accretive to EPS (adjusted for items affecting comparability and purchase price allocation related amortization) from inception and by more than 15% in 2024.
- Medium-term financial targets updated.
- F-Secure to host a conference call in connection with the Q1 2023 Interim Report today at 10:00 a.m. EEST.
 Converted to EUR using the 25 April 2023 exchange rate of EUR/USD 1.1022.
 FY 01/2023 EBITA of USD 14.2 million.
 Assuming constant currencies.
F-Secure Corporation (“F-Secure”) has on 26 April 2023 signed an agreement to acquire the mobile consumer security business unit (“Lookout consumer BU”) from Lookout Inc. (“Lookout”). The acquisition of Lookout consumer BU will nearly triple F-Secure market presence in the United States and expand its diverse range of consumer security products. The acquisition is also a significant step in expanding F-Secure business with 1st tier Communication Service Providers (“CSPs”) and will further strengthen F-Secure leadership position in the global CSP segment.
Lookout’s mobile consumer security business unit, operating under the Lookout Life brand, develops and markets the leading consumer focused mobile security platform with complementary product offering and partner-led go-to-market strategy, similar to F-Secure. Its mobile optimized product portfolio and geographic presence will complement and enhance the overall global offering of F-Secure. The acquisition is strongly in line with F-Secure vision to become the #1 consumer security experience company.
Timo Laaksonen, President and CEO of F-Secure:
“In line with F-Secure strategy, we are seeking growth both organically and through acquisitions. The acquisition of Lookout consumer BU is a significant step in developing our business in the United States. With a complementary software product portfolio and strong competence in developing mobile products, Lookout consumer BU is a perfect fit for F-Secure. The acquisition presents a truly unique opportunity for us to grow in the most attractive cyber security market in the world through a highly complementary partner-oriented business with similar views on future direction. We warmly welcome this talented group to F-Secure and with complementary industry leading competencies in both companies’ teams, we will create an even stronger platform for future growth.”
Pertti Ervi, Chair of the Board of F-Secure:
“The acquisition of Lookout consumer BU is a transformative milestone for F-Secure and a unique opportunity to accelerate growth in the large and expanding consumer cyber security market. The acquisition is closely aligned with F-Secure strategy to deliver a more integrated and comprehensive suite of security solutions to customers globally and significantly strengthens our position as a supplier to the largest operators in the especially important US market. We believe this acquisition is an excellent value creation opportunity from a business perspective, and we also believe it creates immediate and substantial long-term value for the shareholders.”
Jim Dolce, CEO of Lookout Inc.:
"Consumers want consolidated solutions that secure every aspect of their digital lives in a seamless experience. By incorporating Lookout consumer BU, F-Secure is uniquely equipped to deliver on this vision. The impact on customers is a genuine example of when one plus one equals three. We look forward to working with the F-Secure team and are delighted to have found a partner with the same vision and goals for our consumer business.”
Compelling strategic rationale
- Increased presence in the US cybersecurity software market: The acquisition nearly triples the size of F-Secure in the fast-growing US consumer cybersecurity software market. Revenue from North America will balance and diversify F-Secure revenue mix from 15% of revenue to ~33% of illustrative combined revenue post-transaction. The US market is the largest consumer cyber security market growing at a faster pace than F-Secure current key markets. In addition, the US is attractive as there is an increasing need and willingness to pay for seamless consumer security experiences.
- Strong go-to-market alignment: Lookout has several large Communication Service Provider (CSPs) as its customers, e.g. AT&T, T-Mobile and Docomo. Through the acquisition F-Secure strengthens its position as the global leader in the CSP channel having approximately 150 CSP partners. The enlarged F-Secure will be even better positioned to win more Tier-1 CSP customers.
- Highly complementary product portfolio: The transaction creates a complementary consumer facing mobile optimized product portfolio, expanding consumer cyber security experience for tens of millions of subscribers worldwide. Lookout consumer BU’s current mobile optimised product portfolio is highly complementary to F-Secure and the acquisition will provide up- and cross-selling opportunities across customers and geographies.
- Strong alignment of culture and competence: The combined company’s ~500 employees have a shared entrepreneurial culture and vision for the future. This global pool of talent brings together cutting-edge competence and experience in developing mobile products. The recent investments in know-how and talent made by both companies are expected to fuel innovation and growth in the future.
Compelling financial rationale
- Enhanced revenue growth potential: The transaction is expected to generate at least EUR 12 million of revenue synergies per annum in 2027. Incremental revenue growth is expected to come from up- and cross-selling of complementary product offering, ARPU increase across product groups and accelerated plan with new security experiences.
- Incremental EBITA from revenue and cost synergies to drive improved profitability: On top of the standalone contribution, the transaction is expected to generate EUR 10 million in incremental EBITA per annum in 2027 mainly through revenue synergies. Additionally, some cost synergies are expected from technology infrastructure and R&D.
- Strong adjusted earnings per share accretion: Transaction is projected to be significantly accretive to EPS (adjusted for items affecting comparability and purchase price allocation related amortization) from inception and by more than 15% in 2024.
- Strong cash flow supports rapid deleveraging and current dividend policy: Upon completion of the transaction, F-Secure is expected to have a leverage of 3.2x. Strong cash flow is expected to reduce the net debt to adjusted EBITDA ratio to less than 2.5x during 2024. F-Secure will maintain its current dividend policy of distributing around or above 50% of net profit as dividend on an annual basis.
Financing of the transaction
The acquisition will be financed with debt for which a new facilities agreement has been entered into with Danske Bank A/S and OP Corporate Bank plc. The new financing package consists of two facilities, (i) a EUR 202 million amortising term loan to finance the acquisition, and (ii) a EUR 20 million revolving loan facility to be used for general corporate purposes of the combined group. Both facilities hold a maturity of 3 years with two 1-year extension options.
The existing undrawn revolving credit facility, procured in conjunction with the demerger from WithSecure, will be cancelled concurrently with closing of the transaction.
Timing and approvals
The transaction is subject to customary closing conditions and is expected to be completed in the second quarter of 2023. The closing of the transaction does not require approval from the competition or other authorities and is not subject to any financing conditions.
F-Secure and Lookout Inc. have agreed on certain service agreements to ensure a smooth transition and integration process including services related to certain general and administrative functions, threat intelligence, and platform services, and intellectual property licenses and knowledge transfer with regards to platform services.
Certain Lookout consumer BU carve-out financial data
The certain unaudited carve-out financial information of Lookout consumer BU for the 12-month period ended January 31, 2023 and 2022 has been derived from Lookout’s consolidated unaudited financial information for the 12-month period ended January 31, 2023 (FY2023) and audited consolidated financial statements for the 12-month period ended January 31, 2022 (FY2022) that have been prepared in conformity with accounting principles generally accepted in the United States (US GAAP). Lookout consumer BU has not formed a legal sub-group within Lookout and it has not prepared consolidated group financial statements prior to the transaction.
Lookout consumer BU’s financial information have been prepared by Lookout’s management on a carve-out basis. The carve-out financial information includes the revenue and expenses directly attributable to Lookout consumer BU including also an allocation of portion of certain Lookout’s costs. Allocations are based on management judgement, assumptions and estimates. Carve-out financial information may not necessarily represent the results of operations and financial position of Lookout consumer BU if it would have been managed as a standalone consolidated group, preparing consolidated financial statements for the periods presented, separate from Lookout. Further, the carve-out financial statements may not be indicative of Lookout consumer BU's future performance or financial position.
In preparation for the transaction, Lookout will carve out and transfer assets and liabilities relevant to Lookout consumer BU to F-Secure. The transaction is made on a cash and debt-free basis thus the transferring assets and liabilities are mainly net working capital items and deferred revenue.
Lookout consumer BU’s financial information below have been converted to EUR using the average exchange rate for the period 1 February 2022 to 31 January 2023, with EUR/USD 1.0487 (1.1759 for the period 1 February 2021 to 31 January 2022). The figures have been rounded.
Unaudited carve-out financial information of Lookout consumer BU (all figures are preliminary)
|EUR Million||FY ending 01/2023||FY ending 01/2022|
|# of employees (end of period)||69||26|
1) Revenue, EBITDA and EBITA include certain non-recurring revenue of EUR 1.8 million (EUR 0.9 million) and costs of EUR 1.1 million (EUR 0.4 million) incurred by Lookout consumer BU in FY2023 and FY2022.
For the fiscal year ending on 31 January 2023, Lookout consumer BU revenue mix was primarily derived from the United States, accounting for approximately 88% of revenue, followed by Japan at 9%, Europe at 3%, and the rest of the world at 0%. In terms of channel mix, Lookout consumer BU’s revenue mix was comprised of approximately 78% from the Partner channel and 22% from the Direct channel.
Certain combined financial data
The unaudited combined financial information has been presented for illustrative purposes only. The combined financial information presents the impact of the transaction to F-Secure financial information as if Lookout consumer BU would have been acquired by F-Secure on 1 January 2022.
The figures presented for the combined financial information are preliminary and based on information available at this time. The combined financial information has been prepared by aggregating F-Secure’s and Lookout consumer BU’s financial information. The combined financial information is based on a hypothetical situation and should not be viewed as pro forma financial information as potential differences in accounting principles or impact of purchase price allocation have not been taken into account. F-Secure will conduct a detailed review of Lookout consumer BU’s accounting policies and prepares the purchase price allocation only after closing.
Illustrative unaudited combined financial information of F-Secure after the Lookout consumer BU acquisition
|EUR Million||F-Secure |
|Adjusted EBITDA 2)||44.5||13.5||58.0|
|Adjusted EBITA 2)||43.9||13.5||57.4|
|Adjusted EBITA % of revenue||39.6%||37.7%||39.1%|
|Net debt||-19.3||-||183.0 (3)|
1) Lookout consumer BU has received payments in advance related to part of its revenue. Such payments are recognised as deferred revenue. As part of the acquisition, F-Secure fair values the deferred revenue for the purposes of acquisition balance sheet, thus the revenues recognised post acquisition related to deferred revenue balances will be lower compared to revenue recognised by Lookout consumer BU for those advance payments. The outstanding current deferred revenue amounts to USD 6.7 million and outstanding non-current deferred revenue amounts to USD 2.0 million as at 31 January 2023.
2) Excluding items affecting comparability (IAC) which relate to listing of F-Secure during 2022, totalling to EUR 3.8 million.
3) Includes the debt-free purchase price impact of the transaction of EUR 202.3 million.
The difference between the preliminary purchase price and Lookout consumer BU’s net assets book value as at 31 January 2023 totals approximately EUR 205 million representing goodwill and intangible assets to be recognised for F-Secure consolidated balance sheet (prior to consideration of fair valuation of the assets and liabilities acquired). This figure is indicative and subject to change when F-Secure measures the assets and liabilities based on their fair value. Intangible assets that F-Secure currently preliminarily expects to recognise relate to among others Lookout consumer BU’s customer relationships and technology.
F-Secure’s net cash amounted to EUR 19.3 million as at December 31, 2022. The impact of the planned acquisition of Lookout Consumer BU to F-Secure’s net debt is estimated to be an increase of approximately EUR 202.3 million, assuming the debt-free purchase price of USD 223 million (EUR 202.3 million ) for Lookout Consumer BU. The actual net debt impact of the acquisition will depend on the final purchase price taking into account purchase price adjustments at closing and prevailing exchange rates, and accordingly may differ from this estimate.
The historical EBITDA and EBITA of Lookout consumer BU may not reflect its profitability had it operated as a standalone entity for the periods presented. After the transaction F-Secure is estimated to incur IAC costs of EUR 7 million related to transaction costs incl. financial and legal advisory, and non-recurring integration costs impacting combined EBITDA and EBITA post acquisition.
Due to above F-Secure’s consolidated financial information that will be published following the completion of the transaction could therefore differ significantly from the illustrative combined financial information presented herein.
 Converted to EUR using the 25 April 2023 exchange rate of EUR/USD 1.1022.
Impact on outlook 2023 and medium-term financial targets (subject to closing of the transaction)
Subject to the closing of the acquisition, the transaction will have a financial impact on F-Secure. At this stage, F-Secure will maintain its 2023 outlook unchanged until the schedule for the completion of the transaction is confirmed. Financial outlook for 2023 published in the financial statement release 2022 on 17 February 2023, does not incorporate the impact of the now disclosed acquisition on the company’s revenue or adjusted EBITA for 2023. Implications on financial outlook for 2023 will be announced later when a reasoned estimate can be made.
Subject to the closing of the transaction, the acquisition is expected to significantly accelerate revenue and absolute EBITA growth and will thus have an impact on medium-term financial targets of F-Secure. In addition, F-Secure introduces a new financial target regarding leverage. New medium term financial targets by 2026 are:
- Growth (updated): Total revenue of more than EUR 200 million by 2026
- Profitability (unchanged): After initial growth investments, adjusted EBITA margin of above 42%
- Dividend Yield (unchanged): Around or above 50% of net profit on an annual basis.
- Leverage (new): Net debt / adjusted EBITDA ratio below 2.5x, excluding temporary impact from acquisitions.
F-Secure Corporation follows the Rule of 40 metric as internal performance measurement and guiding principle, according to which the combined revenue growth rate and profitability margin should be equal to or greater than 40%.
Carnegie Investment Bank AB (publ.), Finland Branch acted as sole financial adviser to F-Secure in relation to the transaction and the debt financing. White & Case acted as legal adviser to F-Secure. PwC acted as financial, tax and HR due diligence adviser to F-Secure. Jefferies LLC acted as exclusive financial adviser to Lookout in relation to the transaction. WilmerHale acted as legal adviser to Lookout.
Conference call for investors, analysts and media
F-Secure will host a combined first quarter 2023 results webcast and press conference today at 10:00 am EEST. Media representatives and analysts covering F-Secure are invited to the event at the company headquarters, Tammasaarenkatu 7, Helsinki, Finland.
The event can be followed live at: https://fsecure.videosync.fi/q1-2023-results/.
For further information, please contact:
Timo Laaksonen, President and CEO
tel. +358 40 7157411
Sari Somerkallio, Chief Financial Officer
tel. +358 40 3569251
F-Secure is Finland headquartered and globally operating consumer cyber security company. F-Secure offers award-winning security and privacy products and services that make every digital moment more secure, for everyone. F-Secure operates in over 100 countries, has ~180 Service Provider partners and is the global leader providing security through Communication Service Providers. F-Secure Corporation is listed on Nasdaq Helsinki Ltd. Read more: www.f-secure.com.
About Lookout Consumer BU
Lookout consumer BU is the Mobile Consumer Security Business unit of Lookout Inc. It is the leading consumer focused mobile security platform, with mobile-first solutions used by millions of customers across the world. Similarly to F-Secure, the Lookout consumer BU has a partner-led go-to-market strategy and a strong competence and expertise in developing mobile products. Lookout consumer BU’s product portfolio consist of pure-play mobile optimized security solutions for device security, network privacy, identity protection and password management. The acquired business has ~70 employees, and they will become employees of F-Secure after the closing of the acquisition.
This release contains forward-looking statements, including, without limitation, statements regarding F-Secure strategy, business plans and focus. The words “may,” “will,” “could,” “would,” “should,” “expect,” “plan,” “anticipate,” “intend,” believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “target” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Any forward-looking statements in this release are based on management‘s current expectations and beliefs and are subject to a number of risks, uncertainties and important factors that may cause actual events or results to differ materially from those expressed or implied by any forward-looking statements contained in this release, including, without limitation, any related to F-Secure business, operations, strategy, goals, acquisition synergies and anticipated timelines and competition from other companies. F-Secure cautions you not to place undue reliance on any forward-looking statements, which speak only as of the date they are made. Any forward-looking statements contained in this release represent F-Secure views only as of the date hereof and should not be relied upon as representing its views as of any subsequent date.