Source: www.databreachtoday.com – Author: 1
Governance & Risk Management
,
Managed Security Service Provider (MSSP)
,
Open XDR
Growth, Profitability and Stock Price Woes Have Dell Primed to Cash Out Its Chips
Michael Novinson
(MichaelNovinson)
![Why Dell Is Once Again Eyeing the Sale of MSSP Secureworks](https://4a7efb2d53317100f611-1d7064c4f7b6de25658a4199efb34975.ssl.cf1.rackcdn.com/dell-once-again-eyeing-sale-mssp-secureworks-showcase_image-6-p-3704.jpg)
The bifurcation of the public cybersecurity market between large, high-growth vendors and small, low-growth vendors is forcing the latter to look into going private.
See Also: How to Unlock the Power of Zero Trust Network Access Through a Life Cycle Approach
Prior to the 2022 economic downturn, there was little correlation between company size and stock performance since investors were willing to bankroll small, money-losing public companies as long as they had sufficiently high rates of growth. But the recovery since January 2023 has been uneven, and a more conservative investment thesis has caused large vendors to fare better than their smaller counterparts.
This has prompted investors in small public companies to cash out their chips. SailPoint, Ping Identity, ForgeRock, Darktrace, KnowBe4 and Sumo Logic have all agreed to private equity sales since spring 2022. And another round of take-private deals appears imminent, as N-Able, Rapid7, Tenable and Trend Micro reportedly have been entering into talks since May about being acquired, likely by private equity.
Now, another public company has reportedly staked a “for sale” sign on its front lawn: Secureworks.
Majority owner Dell is exploring a possible sale of the Atlanta-based cybersecurity services vendor, tapping investment bankers at Morgan Stanley and Piper Sandler to gauge takeover interest from potential acquirers, which include private equity firms, Reuters said Thursday. Dell and Secureworks declined Information Security Media Group’s requests for comment, and the bankers didn’t respond.
Investors have reacted favorably, sending Secureworks’ stock up 10.6% to $8.24 per share since the report appeared, which is the highest the company’s stock has traded since June 2023. Secureworks’ stock is down nearly 70% from its all-time high of $25.98 per share in September 2021, and the firm currently has a valuation of just $731.1 million (see: Secureworks Lays Off Another 322 Staffers to Improve Margins).
Secureworks’ Treacherous Path to the Auction Block
This isn’t Secureworks’ first time on the auction block. Dell and Morgan Stanley teamed up in February 2019 to explore a sale after Secureworks’ stock was trading at a then-record high of $24.56 per share, Reuters reported at the time. Then in December 2019, Bloomberg said that Dell was looking into buying out minority stakeholders in Secureworks and bringing the business fully under the Dell umbrella.
But nothing materialized, and Dell owns 79.2% of Secureworks’ Class A shares and all of the company’s Class B shares, giving the company 97.4% of total voting power. Other stockholders in Secureworks include: Neil Gagnon, managing partner at investment firm Gagnon Securities; Royce & Associates; former CEO Michael Cote; The Vanguard Group; First Eagle Investment Management; and Centerview Entities.
Secureworks is currently the only cybersecurity company under Dell’s control following the September 2020 sale of encryption titan RSA Security to private equity firm Symphony Technology Group for $2.08 billion. RSA had been under the Dell Technologies umbrella since Dell completed its $60 billion purchase of storage giant EMC in September 2016.
The size of Secureworks’ workforce has fallen by nearly 44% in recent years, and headcount has plummeted from 2,696 employees on Jan. 29, 2021, to just 1,516 workers on Feb. 2, 2024. The company’s workforce has increasingly shifted to lower-cost locations such as Romania and India, and the share of Secureworks employees based in the United States has dropped from 55.7% in early 2023 to 50.1% in early 2024.
Secureworks carried out two rounds of layoffs last year, axing 9% of its staff – or roughly 212 employees – in February 2023 as Chief Financial Officer Paul Parrish and Chief Threat Intelligence Officer Barry Hensley left their posts. Then in August 2023, Secureworks cut another 15% of its staff – or roughly 322 positions – as the company pursued high-growth products and improved operating margins (see: Secureworks Lays Off 9% of Staff; CFO, Threat Intel Head Out).
Secureworks’ Struggles Mirror Other Legacy Global MSSP Firms
Secureworks has made big changes to its business since Wendy Thomas was promoted to CEO in 2021. The company’s Counter Threat Platform reached end of life in February 2023, and Secureworks said it is “sunsetting” other “non-strategic services.” At the same time, Secureworks boosted annual recurring revenue for its Taegis XDR tool by 7% to $287 million, and quarterly sales are up 10% to $69.1 million.
Forrester didn’t include Secureworks in its 11-vendor evaluation of the XDR market in June of this year. The company’s revenue for the fiscal year ended Feb. 2, 2024, fell to $365.9 million, down 21.1% from $463.5 million the year prior. On the positive front, Secureworks’ net loss improved to $86 million, or $1.00 per share, 24.9% better than the $114.5 million net loss in the fiscal year ended Feb. 3, 2023.
Many pure-play global managed security service providers have struggled in recent years as customers opt for newer technologies or different approaches. The private equity affiliate of former Secretary of Homeland Security Michael Chertoff’s advisory firm purchased Trustwave in January for $205 million, nearly 75% lower than the $770 million telecom conglomerate Singtel paid to buy Trustwave in 2015.
Trustwave’s headcount sank 20% to 1,138 workers between the start of 2020 and today. HelpSystems – now Fortra – agreed to buy Alert Logic in March 2022, and the firm’s headcount nosedived by 64% to 240 workers between January 2020 and today. And LevelBlue laid off 15% of its 1,000-person workforce in June, just months after AT&T sold a majority stake in the MSSP to financial backer WillJam Ventures.
Any potential buyer of Secureworks will have to factor in the company’s performance and these MSSP industry trends to arrive at the right price.
Original Post url: https://www.databreachtoday.com/blogs/dell-once-again-eyeing-sale-mssp-secureworks-p-3704
Category & Tags: –
Views: 1