Magnet Forensics, the Waterloo, Ont.-based cybersecurity and digital forensics company led by a number of former BlackBerry executives, has agreed to merge with Atlanta-based mobile forensics firm Grayshift under an acquisition by U.S. private equity giant Thoma Bravo. The deal follows Magnet’s failed bid to buy Grayshift itself, sources familiar with the transaction details told The Logic.

Here’s what else you need to know: 

The bidding war: Two sources—which The Logic agreed not to name because they were not authorized to speak on the deal, which has not yet closed—said that Magnet originally planned to acquire Grayshift as part of a broader acquisition strategy. That fell through when Thoma Bravo stepped in and outbid Magnet on the deal. Thoma bought Grayshift in July 2022. 

Thoma, which focuses on software, has been on a cyber-firm buying spree, with analysts predicting consolidation in the sector, amid a proliferation in new startups. The firm approached Magnet in the fall to discuss a merger with Grayshift—a private firm with which Magnet has partnered for years—and formally proposed a takeover on Oct. 5. One source said Magnet reviewed several offers, though none were as strong at Thoma’s. 

The strategy: Three sources familiar with the transaction described the buyout as a strategic move to fuel both Magnet and Grayshift’s growth, and was not a response to financial troubles. Both companies are growing, despite macroeconomic headwinds. Magnet’s stock closed Thursday at $38.35 per share, more than 125 per cent above its IPO price. The company has 115 job postings listed on its website, and Grayshift is advertising six job openings. 

The money: The purchase price—$44.25 per share—is about 15 per cent higher than Magnet’s most recent closing price on the Toronto Stock Exchange and 41 per cent above its 90-day trading price average. It represents a premium of about 160 per cent to Magnet’s $17-per-share IPO price in April 2021. 

Giving up control: Magnet co-founders Jad Saliba and Adam Belsher (who lead as CTO and CEO, respectively), along with board chair Jim Balsillie own more than 95 per cent combined of the 13-year-old company. The proposed transaction would dilute their stake to a minority, with 55 per cent of their shares being rolled into the new company. 

They will each receive $39 for every share they own, less than what subordinate shareholders will get. Based on the number of shares each of the trio held as of April 2022, that leaves Saliba’s holdings worth about $461 million; $439 million for Belsher; and nearly $242 million for Balsillie following the transaction. 

Who will lead? Belsher and Saliba will hold “critical leadership positions in the combined company” along with Grayshift’s founders David Miles and Braden Thomas, according to Magnet’s press release. Balsillie will serve on the board of the combined company. A source told The Logic that Belsher will remain CEO of the new firm. 

Who has to move? Shareholders will have a say on where the new company is headquartered. While there’s no guarantee it’ll stay in Waterloo, Magnet has the benefit of size, with about three times as many clients than Grayshift. 

What’s next? Shareholders will vote on whether to approve the merger in March. It also needs regulatory approval. The company expects to close the deal in the second quarter.