By: Deborah Balshem
Published to: Mergermarket, the leading provider of forward-looking M&A intelligence and data to M&A professionals and corporates around the world.
PC Pitstop, a privately held anti-virus software firm, would like to develop relationships with the investment community now in anticipation of a future outside investment, said CEO Rob Cheng.
The 57-year-old executive founded Sioux City, Iowa-based PC Pitstop in 1999 and owns 90% of the business, after giving 10% to certain employees via stock options close to two years ago. Though he has no set timing for a sale or outside investment, Cheng said that “at some point, I will have to find a market for my shares and the employees’ shares.”
“I want (the investment community) to know about my company, where we are, how we are positioned and what we intend to do – before going out to the market,” he explained.
A little more than two years ago, Cheng hired an executive to reach out to the investment community. Though PC Pitstop entered into the due diligence stage with one PE firm, no deals materialized due to valuation impasses, he noted.
The company expects significant growth in the coming years, and rightfully so, investors wanted to value the business based on current figures, Cheng said. Given that PC Pitstop generates significant cash, there is no urgency to ink a deal, he added.
PC Pitstop continues to entertain regular approaches from PE firms, with three calls scheduled this week, according to Cheng. The company saw an uptick in interest last month after WannaCry – a worldwide cyberattack by the WannaCry ransomware cryptoworm, which targeted computers running the Microsoft Windows operating system by encrypting data and demanding ransom payments in the Bitcoincryptocurrency.
May revenue was up 42% over the same period last year, noted Cheng, a former senior vice president for computer hardware company Gateway (acquired by Acer in 2007) who seed funded PC Pitstop with USD 1m of his own money.
PC Pitstop had revenue of USD 11.9m in 2015 and USD 13.5m in 2016. The debt-free company is projecting between 25% and 50% growth this year, depending on how quickly its B2B division and reseller program, both launched in March, gain traction.
Anecdotally, Cheng said he has heard that multiples in the space can reach upwards of 6x-7x revenue and 40x EBITDA.
On the B2C side, PC Pitstop’s consumer product PC Matic, which costs USD 50 annually for up to five computers, has more than one million active users. Cheng noted that many businesses have purchased the consumer product – including The US Army, Air Force and Navy; AT&T; Aflac, RE/MAX; and USPS – and part of its B2B strategy is converting those customers to PC Matic PRO.
The consumer business has few peers, according to Cheng, though there are roughly 40 competitors in the B2B sector, including Symantec [NASDAQ:SYMC], McAfee , Cylance, ESET, Trend Micro and Bitdefender.
In terms of recent deals, Cheng pointed to Avast Software’s September acquisition of AVG Technologies for USD 1.3bn.
PC Pitstop advertises primarily through TV commercials on cable news channels in the US, though it has some exposure in the UK and Japan. Cheng mentioned that revenue for 2016 was slightly stymied because of the election, with political advertising dominating air time.
What differentiates PC Matic from other anti-virus software is its Super Shield real-time protection, which is based on a white list that denies access to all unknown files until authenticity can be verified, Cheng noted. Most anti-virus software operates off a black list, which only blocks files that are known to be threats, while allowing for all others – a system Cheng said has inherent flaws, as new malicious files are constantly being developed.
“The problem with black lists is not their accuracy but keeping them up-to-date,” continued Cheng, who likened black lists to giving out your house key. “If there is a list of every known criminal in the world, would you give your key to everyone who is not on that list? There are people being thrown into jail every hour.”
PC Pitstop has 50 employees. Its corporate advisors include law firm Dickinson Wright and accounting firm Ryan, Hodgins & Associates.
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