Cylance Inc. has grown into one of the most trusted names in software security, and a deep-pocketed buyer in the midst of a big corporate reinvention has taken notice.
BlackBerry Ltd., once a leader in the cellphone industry, said last Friday it would take over the Irvine-based company for $1.4 billion in cash, the largest deal in its 34-year history.
The transaction, which has been approved by the boards of each company, is expected to close by March.
The move makes sense for Blackberry, which is pivoting toward cybersecurity and away from the cellphone once loved by politicos, such as Barack Obama and Hillary Clinton.
“Blackberry is all about mobile first, and Cylance is all about fixed points,” Blackberry Chief Executive John Chen said in a conference call with analysts following the announcement. “This is the next step of growth that we needed.”
Cylance products are used to protect more than 15 million Internet-capable computer hardware devices for over 3,500 subscribers, including Dell, Gap Inc. and Panasonic.
Blackberry is cash-rich, reporting $2.3 billion in cash and equivalents as of Aug. 31. It has $739 million in long-term debt.
The company has been on the prowl for potential buys, and Cylance checked off several boxes in an era of hyper-connectivity and the push to increase data security and privacy, according to Chen.
He said the investment provides a solid foundation to grow its software services business.
“There are no doubts in my mind that we’re acquiring cutting-edge technology,” he said during the conference call. “It’s really complementary to a lot of the stuff we want to excel in.”
That includes endpoint management, communication and developing inroads in the automotive industry.
“Needless to say, we’re going to be able to make a car safer,” Chen said.
Cylance Chief Executive Stuart McClure said the companies share a common mission, and a rather lofty goal to “secure every endpoint in the world.”
“We prove every day that we can actually identify attacks long before they ever start,” said the past Business Journal Innovation winner.
High Multiple
The $1.4 billion sales figure represents a multiple about 11 times higher than Cylance’s last fiscal-year revenue of $130 million. Cylance grew revenue more than 90% in the 12 months through April.
The software maker surpassed the $100 million revenue milestone only 39 months after shipping its first flagship product, CylanceProtect, in 2014. The company claimed the product had bested competitor offerings from the likes of Box Inc. (NYSE: BOX), Okta Inc. (Nasdaq: OKTA) and FireEye Inc. (Nasdaq: FEYE), companies with price-to-sales ratios ranging from four to 18.
Cylance’s software combines machine learning, artificial intelligence algorithms and the cloud to thwart new and evolving threats and cyberattacks before they hit servers, desktops and virtual desktops.
Fall From Grace
Blackberry was once ubiquitous as the cellphone of businesses and government officials, known for its email and security systems. Its revenue peaked in 2011 at $19.9 billion, and it reported 80 million users in 2012.
It struggled in recent years to compete against Apple Inc., Samsung, and Alphabet Inc. By fiscal 2018, revenue had dropped to $932 million, and it exited the hand-held device business and instead licenses the name to other manufacturers.
Early last year, the Business Journal was the first to report that the Waterloo, Canada-based company planned to license its smartphone brand in the U.S. and Canada through a deal with TCL Communication’s North American operation, which is based in Irvine.
Blackberry now generates revenue from subscription enterprise software and services, including cybersecurity consulting. It forecasts software and service revenue to grow 8% to 10% in fiscal 2019.
“The company leverages its expertise in endpoint security and management to capitalize on opportunities in growing segments of the cybersecurity, connected transportation, healthcare, financial services and government markets,” Blackberry wrote in its fiscal 2018 annual report.
“With its BlackBerry Secure platform, the company intends to provide enterprises and governments with the highest standard of security.”
Cylance Standard
Cylance said it’s prevented more than 23 million attacks around the world, including more than four million previously unidentified attacks, such as ransomware and those that use tools already installed on targeted computers.
Cylance, according to a blog post on investor site Seeking Alpha, “has been the missing component” for Blackberry.
Shares of Blackberry (NYSE: BB) are down by 20% this year, recently trading at about $9 and a $4.8 billion market cap as of press time.
Cylance, steeped in the hot segments of artificial intelligence and cybersecurity, should help change Blackberry’s Wall Street story, particularly in securing communications, a prominent feature that, along with its raised keyboard design, once drove millions to its smartphones.
“Increasing their commitment in that area is a good strategic move,” said technology analyst Roger Kay. Blackberry “still represents the gold standard” for security.
Fed Certification
Cylance has been serving U.S. government agencies for more than a year after earning an important federal certification for CylanceProtect.
It’s one of the highest-valued private companies in Orange County, raising $120 million in a June venture round led by prior investor Blackstone Tactical Opportunities.
Cylance told the Business Journal at the time that it planned to use proceeds to continue expansion across Europe, the Middle East and Asia Pacific, as well as to boost sales, marketing, and product and business development.
The company has raised $297 million since its 2012 inception. A $100 million Series D round in 2016 led by Blackstone catapulted it into unicorn status.
Cylance employs 382 at its 134,000-square-foot headquarters at the 21-story 400 Spectrum Center tower, which bears its name at the top.
