Thoma Bravo, the private equity and growth capital firm, today announced that it would spend $1.8 billion CAD (~$1.34 billion) to acquire Magnet Forensics, a Waterloo-based company that creates software used by defense and businesses to investigate cybersecurity threats.

Magnet Forensics will be purchased by a newly formed company controlled by Thoma Bravo, Morpheus Buyer Inc., which will pay Magnet Forensics shareholders a 15% premium over Thursday’s closing price on the Toronto Stock Exchange. Following the purchase, Morpheus will be merged with Grayshift, a mobile forensics company, which Thoma Bravo acquired majority stake last July.

The transaction is expected to close in the second quarter of 2023, subject to shareholder and other customary approvals.

“We look forward to bringing together the complementary capabilities of Magnet and Grayshift to create a leader in the digital forensics and cybersecurity space,” Thoma Bravo partner Hudson Smith said in a press release. “Digital evidence is becoming an increasingly important aspect of investigations and the combined company will be well positioned to drive further market expansion, accelerate innovation and deliver even better solutions to its customers.”

Launched in 2010, Magnet Forensics develops digital investigative software that collects, analyses, reports and manages evidence from computers, mobile devices, Internet of Things devices and cloud services. The company was founded by Jad Saliba, a Waterloo regional police officer who worked in the police’s high-tech crime unit. After incubating Magnet Forensics’ software at the unit, Saliba decided to go into business on his own and sell the technology for a licensing fee, working with Jim Balsillie and Adam Belsher, BlackBerry executives at the time.

Before going public, Magnet Forensics attracted investment from In-Q-Tel, the nonprofit arm of the US intelligence community. The company claims its software is used by more than 4,000 public and private sector clients — for example, law enforcement, intelligence, tax officials, border guards, and military personnel — in more than 100 countries, to help investigators protect assets and monitor national security .

Business was booming prior to the acquisition (Granted, Thoma Bravo first submitted a proposal in early October). During its Q3 2022 earnings call, Magnet Forensics reported that annual recurring revenue increased 50% year over year to $80.9 million, while EBITDA — earnings before interest, taxes, depreciation and amortization — rose 25% to $ 5.9 million.

Magnet benefited from the growing digital forensics market, which is expected to grow from $5.8 billion in 2022 to $10.9 billion in 2028, according to a recent Imarc report.

Adam Belsher, who serves as CEO of Grayshift, says the combination of Grayshift’s mobile access and extraction capabilities and Magnet’s digital investigation suite will strongly position the merged companies – enabling customers to better extract, process, investigate, collaborate on and manage digital forensic evidence .

“We believe that the combination of Magnet and Grayshift will unlock tremendous value for our customers by further integrating and expanding our product suite, resulting in more seamless workflows in the recovery and analysis of critical digital evidence for investigations and ultimately contribute to our shared mission of pursuing justice,” Belsher said in a statement. “We look forward to working with Thoma Bravo and Grayshift to build on our digital research suite to further innovate and continue to serve a growing number of organizations and use cases.”

For Thoma Bravo, now estimated to have more than $114 billion in assets under management, Magnet Forensics is the latest in a series of high-profile acquisitions of software companies. In 2022, the company spent billions of dollars purchasing cybersecurity startups Ping Identity, Sailpoint, ForgeRock, Bottomline Technologies, and Coupa Software.