The Mountain View, California-based company became a takeover target after its shares lost 80% of their value in the last two years. It had benefited from a bonanza in technology spending during the COVID-19 pandemic, fueled by remote work, which fizzled as companies slashed their information technology budgets as the economy slowed.
SentinelOne has hired investment bank Qatalyst Partners to advise on discussions with potential acquirers, including private equity firms, the sources said.
Initial expressions of interest did not meet SentinelOne’s valuation expectations, and it is possible that the company ends the talks without a deal, one of the sources added. The sources did not specify the price SentinelOne has been seeking.
Spokespeople for SentinelOne and Qatalyst did not immediately respond to requests for comment.
SentinelOne’s shares jumped 19% to $17.19 on the news in afternoon trading in New York on Monday.
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SentinelOne, which was launched in Israel in 2013, protects laptops and mobile phones from security breaches by using artificial intelligence to identify unusual behavior in enterprise networks. It competes with CrowdStrike Holdings Inc, and its customers include major companies and the U.S. government. Backed by Daniel Loeb’s hedge fund Third Point and venture capital firms including Tiger Global and Sequoia Capital, SentinelOne listed in the U.S. stock market in 2021 at a $8.9 billion valuation.
But investor excitement soon turned to disappointment as the company struggled to become profitable as it kept its prices low with clients to win market share. In June, SentinelOne also disclosed it had overvalued its annual recurring revenue and had to restate it due to “a change in methodology and the correction of historical inaccuracies.”
In its latest quarterly earnings report, SentinelOne slashed its guidance for annual revenue growth and said it would lay off about 5% of its employees.
Morgan Stanley analysts, in a note in June, pointed to potential upside to SentinelOne’s stock given how much it was discounted to its rivals.
“While recent execution missteps have shaken investor confidence, we think the intrinsic value of the asset is much higher than the market ascribes and see a compelling risk-reward with valuation now at a 50% discount to peers on a growth-adjusted enterprise value/sales basis,” the Morgan Stanley analysts wrote.
Insight Partners, a private equity firm, controlled 47.7% of SentinelOne’s voting shares as of the end of April, thanks to a dual-class share structure the company has adopted, according to the most recent regulatory filing on the matter. Redpoint Ventures, another investor, held 22.9% of the voting shares.
Private equity firms have been prolific investors in the cybersecurity sector. In November 2021, an investor consortium led by private equity firm Advent International acquired McAfee Corp for $14 billion.
Tech-focused private equity firm Thoma Bravo has also been a serial acquirer in the sector, having bought Ping Identity, ForgeRock, Sailpoint Technologies and Magnet Forensics Inc, among others.
