BlackBerry Ltd. has agreed to buy Cylance Inc., a California cybersecurity company that uses artificial-intelligence technology to predict and potentially prevent cyberattacks, for US$1.4-billion in cash.
The smartphone pioneer, based in Waterloo, Ont., has spent the past five years shifting its focus to software security under chief executive John Chen. The company said the Cylance purchase would “immediately complement” its existing suite of services – in particular, its QNX-brand smart-vehicle software used by more than 120 million vehicles worldwide, and its secure-technology-management system for enterprise customers.
Cylance claims it can determine cybersecurity threats an average of 25 months before they become public knowledge; it will operate as an independent business unit within BlackBerry, with CEO Stuart McClure reporting to Mr. Chen. In a presentation to investors, BlackBerry said that the transaction “accelerates the realization of our vision” of becoming a go-to vendor for large organizations and businesses to secure their ever-broadening suites of connected devices. The company will embed Cylance’s capabilities into BlackBerry Spark, the platform it announced in September that centralizes its device-management offerings for customers.
The company said it was the biggest acquisition in BlackBerry’s history; by comparison, its high-profile purchase of QNX from Harman International Industries Inc. in 2010 was valued at US$200-million. Analysts had long been speculating that a high-profile acquisition might be forthcoming as BlackBerry slowly built up its cash pile to more than US$1.7-billion. “I’ve always said that we would be patient for the right asset, and believe we are obtaining a premium cybersecurity asset in Cylance,” Mr. Chen said on an analyst conference call on Friday morning.
A preventive approach to cybersecurity, Mr. Chen said later on the call, was a prudent long-term investment for the now-security-focused company: "This is why we take flu shots, right? You want to be preventative – you don’t want to be responding to an illness.”
The deal has been in the works for three months, Mr. Chen said on a later call with media. “They were on a path to an IPO and we were trying to interrupt their path,” he said.
The acquisition brings an additional 100 patents and patent applications into BlackBerry’s portfolio of more than 37,000. When asked by The Globe and Mail about the long-term implications for the company’s intellectual-property portfolio, Mr. Chen said Cylance’s team would boost BlackBerry’s capabilities to innovate within the lucrative fields of artificial intelligence. “Cylance’s team, a bunch of data scientists, continue to innovate on new technology and new ways of protecting the world of communications and the world of connectivity,” Mr. Chen said.
BlackBerry’s key post-smartphone revenue line is software and services. The acquisition, Mr. Chen told analysts and reporters, would bring its annual revenue in that division to more than US$1-billion. (BlackBerry’s handset revenue now makes up a minuscule amount of the company’s revenue, bringing in just US$5-million last quarter.)
Rumours of the acquisition began swirling last week. Analyst Paul Treiber with RBC Dominion Securities said feedback with investors since then has been mixed. Its Toronto-listed shares fell 5 per cent from the end of last week until markets opened on Friday. Shares closed Friday up 1.5 per cent, at $11.82.
“On one hand, investors are enthusiastic about the long-term strategy and shift towards cybersecurity,” Mr. Treiber wrote in a research note on Friday morning. On the other hand, he continued, there are concerns about the acquisition’s valuation and the significant reduction in BlackBerry’s net cash after the acquisition.
T. Michael Walkley of Canaccord Genuity wrote in a note on Friday that the transaction should be well-received by investors, who’ve waited to see how the company deployed its cash reserve among expectations that security and artificial intelligence are growth opportunities in BlackBerry’s connected-device market.
In its most recent quarter, BlackBerry reported revenue of US$210-million, down 12 per cent year-over-year, in part because of a down-tick in enterprise-software income, but largely a result of a predicted decrease in service-access fees for its mobile operating-system software. The company reported a profit of US$43-million.
Cylance was founded in 2012, employs 900 people, and is based in Irvine, Calif., near Los Angeles. The company says it has 3,500 active enterprise customers, including about 100 companies in the Fortune 500. It closed a US$120-million funding round in June, at which point the company said its most recent annual revenue was US$130-million with more than 90-per-cent year-over-year growth.
The deal is expected to close by February, 2019, at the end of BlackBerry’s fiscal year.
Josh O’Kane