Tripwire pulls the plug on its IPO

Contact: Brenon Daly

Almost exactly a year after Tripwire formally filed its IPO paperwork, the security vendor has opted for the other exit, a trade sale. Thoma Bravo, a buyout shop with a number of other security and management companies in its portfolio, expects to close the acquisition of Portland, Oregon-based Tripwire this month. Terms weren’t disclosed but we understand that Thoma Bravo is paying about $225m. The decision by Tripwire to sell isn’t a surprise, any more than the fact that a buyout shop is its new owner.

If it had gone ahead with its IPO, we suspect that Tripwire would have had a rough go of it as a public company. Wall Street looks for growth, and while Tripwire has put up steady growth, it hasn’t been explosive growth or particularly valuable growth, at least in the eyes of portfolio managers. In 2010, Tripwire bumped up its overall top line 16% to $86m, primarily driven by increases in maintenance revenue and, to a lesser degree, consulting work. Collectively, those lines of business, which now represent more than half of Tripwire’s total revenue, rose 25% in 2010 – three times the rather anemic growth rate of 8% in license sales. (License sales actually flatlined in both the third and fourth quarters of 2010.)

The lagging license sales certainly wouldn’t have helped the company attract interest from strategic buyers. We noted earlier that nearly four years ago Tripwire came very close to selling to BMC. Since it filed its prospectus, we’ve heard that both Quest Software and CA Technologies looked at Tripwire. Still, in our view, Tripwire has a financial profile that should fit well inside a PE portfolio: some 6,000 customers; seven consecutive years of revenue and operating income growth; a rock-steady – and growing – maintenance stream of about $40m; and roughly $10m in cash flow per year.