TORONTO—Magnet Forensics Inc. (the “Company” or “Magnet”) (TSX: MAGT), developer of digital investigation solutions for more than 4,000 enterprises and public safety organizations, is pleased to announce that it has entered into a definitive arrangement agreement (the “Arrangement Agreement”) with Morpheus Purchaser Inc. (the “Purchaser”), a newly created corporation controlled by Thoma Bravo, a leading software investment firm, whereby the Purchaser will acquire the Company, subject to obtaining shareholder and other customary approvals (the “Transaction”). Under the terms of the Arrangement Agreement, holders of the outstanding Subordinate Voting Shares (“SV Shares”) of the Company (other than Messrs. Jad Saliba and Adam Belsher and associates and affiliates thereof (collectively with Mr. Jim Balsillie and his associates and affiliates, the “Rolling Shareholders”) will receive CA$44.25 cash per SV Share (the “Purchase Price”) and the Rolling Shareholders will receive CA$39.00 for each outstanding SV Share and Multiple Voting Share (“MV Share”) of the Company (together with the SV Shares, the “Shares”) they sell for cash to the Purchaser (see “Transaction Details” below), representing an aggregate total equity value of approximately CA$1.8 billion on a fully-diluted, in-the-money, treasury method basis and inclusive of Rollover Shares (as defined below). Upon completion of the Transaction, Magnet will become a privately held company.

The Purchase Price represents a premium of approximately 15% to the closing price on the Toronto Stock Exchange (the “TSX”) of the SV Shares on January 19, 2023, the last trading day prior to the announcement of the Transaction, and a premium of approximately 41% to the 90-trading day volume weighted average trading price per SV Share as at that date. The Purchase Price is also above the 52-week high closing price of the SV Shares as of January 19, 2023, and represents a premium of approximately 160% to the Company’s initial public offering price of the SV Shares of CA$17.00. This value further represents an 87% premium to the closing price on October 5, 2022, the last day prior to Thoma Bravo’s submission of its initial non-binding proposal for an acquisition of the Company.

Following the closing of the Transaction, Thoma Bravo intends to combine the Company and Grayshift LLC, which Thoma Bravo acquired majority control of in July 2022. The companies’ complementary offerings are expected to create a powerful end-to-end digital investigations platform empowering more public safety agencies around the world to seek justice, solve crimes, and protect victims. Grayshift is a leading provider of mobile device digital forensics, specializing in lawful access and extraction. By combining Grayshift’s mobile access and extraction capabilities with the Company’s digital investigation suite, customers are expected to be able to leverage the platform to extract, process, examine, collaborate on and manage digital forensic evidence. Adam Belsher and Jad Saliba, Founders of Magnet, and David Miles and Braden Thomas, Founders of Grayshift, will each hold critical leadership positions in the combined company. Magnet’s Chair, Jim Balsillie, will serve on the board of the combined company.

“We believe the combination of Magnet and Grayshift will unlock tremendous value for our customers by further integrating and expanding our product suite which will result in more seamless workflows in the recovery and analysis of critical digital evidence to investigations and ultimately contribute to our shared mission of the pursuit of justice,” said Adam Belsher, CEO of Magnet. “We look forward to partnering with Thoma Bravo and Grayshift to build upon our digital investigation suite to further innovate and continue to serve a growing number of organizations and use cases. We are confident that this transaction — joining two complementary organizations to form a new private company — offers the most compelling value creation for all our stakeholders and is a testament to the value of digital investigation solutions, the Magnet platform, our talented team, and loyal customer base.”

“Since early in Grayshift’s history, Magnet Forensics has been a trusted and strategic partner,” said David Miles, Co-Founder and Chief Executive Officer of Grayshift. “Bringing Magnet and Grayshift together will accelerate innovation and ultimately transform digital investigations. Today's announcement is a defining moment in the industry, and together we will accelerate the future of digital forensics.”

“We look forward to bringing together the complementary capabilities of Magnet and Grayshift to create a leader in the digital forensics and cyber security space,” said Hudson Smith, a Partner at Thoma Bravo. “Digital evidence is an increasingly critical aspect of investigations and the combined company will be well-positioned to further market expansion, accelerate innovation, and provide even greater solutions to its customers. We look forward to leveraging Thoma Bravo’s deep industry, operational and investment expertise to help the combined company capture the tremendous growth opportunities ahead.”

Transaction Details
The Company entered into the Arrangement Agreement based on the unanimous approval of the Company’s board of directors (the “Board”) (with conflicted directors abstaining) and the unanimous recommendation of a committee of independent directors (the “Special Committee”), that the Transaction is fair from a financial point of view to the holders of the Shares (the “Shareholders”) (other than the Rolling Shareholders), and is in the best interests of the Company. The Arrangement Agreement was the result of a comprehensive negotiation process that was undertaken at arm’s length with the oversight and participation of the Special Committee advised by independent and highly qualified legal and financial advisors. See “Unanimous Board Approval” below.

The Rolling Shareholders are effectively rolling over 55% of their Shares (in the aggregate approximately 15.9 million MV Shares and approximately 0.2 million SV Shares, collectively, the “Rollover Shares”) at an implied value per Share equal to CA$39.00 per Share, such that upon completion of the Transaction, they will be minority shareholders of the Purchaser. The remaining Shares owned by the Rolling Shareholders (in the aggregate approximately 13.0 million MV Shares and approximately 0.2 million SV Shares) will be sold to the Purchaser for cash at CA$39.00 per Share. The Rolling Shareholders, at the request of, and after negotiations with, the Special Committee, agreed to accept less per Share in order to benefit the holders of SV Shares.

As at the date hereof, the Rolling Shareholders own or control, directly or indirectly, all of the issued and outstanding 28,903,303 MV Shares, and Messrs Saliba and Belsher, together, own or control, directly or indirectly, an aggregate of 368,522 SV Shares, representing approximately 3.0% of the Company’s issued and outstanding SV Shares.

Unanimous Board Approval
The Board, with Messrs Saliba, Belsher and Balsillie declaring their conflicts of interest and abstaining from voting, unanimously approved the Arrangement Agreement following receipt of the unanimous recommendation of the Special Committee, which was appointed by the Board to, among other matters, review strategic alternatives for the Company including the Transaction, consider the Company’s best interests and the implications to shareholders and other stakeholders, and provide the Board with advice and recommendations with respect to the Transaction. As such, the Board unanimously, with the conflicted directors abstaining from voting, recommends that holders of SV Shares vote in favour of the Transaction. The Company intends to hold a special meeting of Shareholders in March 2023 (the “Shareholders’ Meeting”), where the Transaction will be considered and voted upon by Shareholders of record.

In making its determination to unanimously recommend approval of the Transaction to the Board, the Special Committee, and in the Board’s determination to approve the Transaction, the Board, considered, among other things, the following reasons for the Transaction:

• Fairness Opinions – receipt of the fairness opinions from each of Morgan Stanley & Co. LLC (“Morgan Stanley”) and CIBC World Markets Inc. (“CIBC Capital Markets”), which each concluded that, based upon and subject to the assumptions, limitations and qualifications set out in their respective opinions, that the consideration to be received by the holders of SV Shares (other than the Rolling Shareholders) pursuant to the Transaction is fair, from a financial point of view, to such shareholders;

• Formal Valuation – the formal valuation prepared by CIBC Capital Markets concluded that, based upon and subject to the assumptions, limitations and qualifications set forth thereof, the fair market value of the Shares as at January 20, 2023 was in the range of CA$36.50 to CA$48.75 per Share;

• Arrangement Agreement Terms – the Arrangement Agreement is the result of a comprehensive negotiation process that was undertaken at arm’s length with the oversight and participation of the Special Committee advised by independent and highly qualified legal and financial advisors and resulted in terms and conditions that are reasonable in the judgment of the Special Committee and the Board, including a customary “fiduciary out” that will enable the Company to enter into a Superior Proposal (as defined in the Arrangement Agreement) in certain circumstances;

• Break Fee and Reverse Break Fee – the break fee payable by the Company of CA$50 million is reasonable in the circumstances and only payable in customary and limited circumstances, and the Company is entitled to a reverse break fee of CA$70 million in certain circumstances if the Arrangement Agreement is terminated;

• Market Check – the Company, with the assistance of Morgan Stanley, conducted a market check subsequent to the receipt of an initial proposal from the Purchaser that did not result in any proposal that was superior to the Transaction;

• All Cash Consideration – the all cash consideration provides holders of SV Shares with certainty of value, and is of particular benefit given the limited trading and lack of liquidity in the SV Shares;

• Value of Shares as a Multiple of Revenues & EBITDA – the favourable comparison of implied revenue and adjusted EBITDA multiples per SV Share of approximately 10x the portion of 2023 estimated revenue attributable to non-rolling holders of SV Shares and approximately 51x the portion of 2023 estimated adjusted EBITDA attributable to non-rolling holders of SV Shares, respectively, when compared to comparable precedent transactions as well as the current trading value of industry peers and their corresponding implied multiples with such estimates based on prevailing equity research analyst consensus estimates for both the Company and industry peers. This value was obtained, in part, by having the Rolling Shareholders agree to a purchase price of CA$39.00 per Share in order to benefit the holders of SV Shares;

• Minority Vote and Court Approval – the Transaction must be approved by not only two-thirds of the votes cast by Shareholders, but also by a majority of the minority in accordance with MI 61-101 (as defined below), and by the Ontario Superior Court of Justice (Commercial List), which will consider the fairness and reasonableness of the Transaction to all Shareholders; and

• Support for the Transaction – as described below, all of the Rolling Shareholders as well as all of the directors and certain of the officers of the Company have entered into voting support agreements, pursuant to which they have agreed to, among other things, vote in favour of the Transaction at the Shareholders’ Meeting.

Opinions
In connection with their review and consideration of the Transaction, the Special Committee engaged Morgan Stanley as its financial advisor in respect of the Transaction and CIBC Capital Markets as its independent valuator in respect of the Transaction. CIBC Capital Markets has verbally delivered to the Special Committee the results of its formal valuation prepared in accordance with Multilateral Instrument 61-101 - Protection of Minority Security Holders in Special Transactions (“MI 61-101”), opining that, as of January 20, 2023 and based upon and subject to the assumptions, limitations and qualifications to be set out in CIBC Capital Markets’ formal valuation letter to the Special Committee, the fair market value of the Shares ranged between CA$36.50 and CA$48.75 per Share. In addition, both Morgan Stanley and CIBC Capital Markets provided an opinion to the Special Committee that, based upon and subject to the assumptions, limitations and qualifications set out in their respective opinions, the consideration to be received by the holders of SV Shares (other than the Rolling Shareholders, as applicable) pursuant to the Transaction is fair, from a financial point of view, to such shareholders.

Additional Transaction Details
Pursuant to the terms of the Arrangement Agreement, the Purchaser will acquire (i) all of the SVS Shares for a cash payment of CA$44.25 per Share, other than those held by the Rolling Shareholders, (ii) all the Shares (other than the Rollover Shares) held by the Rolling Shareholders for a cash payment of CA$39.00 per Share and (iii) the Rollover Shares which will be exchanged for shares of the Purchaser at a value of CA$39.00 per Share, on a rollover, tax deferred basis.

The Transaction is to be completed by way of a plan of arrangement under the Business Corporations Act (Ontario) and will constitute a “business combination” for purposes of MI 61-101. The Transaction is subject to certain approvals at the Shareholders’ Meeting, including by: (i) at least two-thirds of the votes cast by Shareholders (voting together as a single class, with each holder of SV Shares being entitled to one vote per Share and each holder of the MV Shares being entitled to ten votes per Share); and (ii) a simple majority of the votes cast by holders of SV Shares (excluding the SV Shares held by the applicable Rolling Shareholders and any other shares required to be excluded pursuant to MI 61-101). Completion of the Transaction is subject to other customary conditions, including receipt of Court and regulatory approvals. The Transaction is not subject to a financing condition. Assuming the timely receipt of all required approvals, the Transaction is expected to close by the second quarter of 2023.

The Arrangement Agreement includes customary non-solicitation provisions, which are subject to customary "fiduciary out" provisions that entitle the Company to terminate the Arrangement Agreement and accept a Superior Proposal if the Purchaser does not match the Superior Proposal.

Upon closing of the Transaction, the Purchaser intends to cause the SV Shares to cease to be listed on the TSX and to cause the Company to submit an application to cease to be a reporting issuer under applicable Canadian securities laws.

Voting Agreements
Each of the directors and certain of the officers of the Company have agreed to vote their Shares in favor of the Transaction pursuant to voting support agreements, subject to customary exceptions. The Shares represented by the parties to the voting support agreements represent approximately 96.5% of the votes of all of the Shares.

Further information regarding the Transaction, the Arrangement Agreement and the Shareholders’ Meeting, including a copy of CIBC Capital Markets’ formal valuation and fairness opinion and Morgan Stanley’s fairness opinion, will be included in the management information circular expected to be mailed to Shareholders of record in February 2023. Copies of the Arrangement Agreement, the forms of voting support agreements and proxy materials in respect of the Shareholders’ Meeting will be available on SEDAR at www.sedar.com.

Early Warning Disclosure by the Rolling Shareholders
Further to the requirements of National Instrument 62-104 Take-Over Bids and Issuer Bids and National Instrument 62-103 The Early Warning System and Related Take-Over Bid and Insider Reporting Issues, the Rolling Shareholders will each file early warning reports in accordance with applicable securities laws.

A copy of each of the early warning reports will be filed with the applicable securities commissions and will be made available on SEDAR at www.sedar.com. Further information and a copy of the early warning reports may be obtained by contacting Neil Desai at  pr@magnetforensics.com.

Advisors
Morgan Stanley is acting as exclusive financial advisor to the Special Committee. CIBC Capital Markets is acting as independent valuator to the Special Committee. Blake, Cassels & Graydon LLP is acting as legal advisor to the Company. Dentons Canada LLP is acting as legal advisor to the Special Committee. Kirkland & Ellis LLP is acting as legal advisor to Thoma Bravo and McMillan LLP is acting as Canadian legal advisor to Thoma Bravo.

About Magnet
Founded in 2010, the Company is a developer of digital investigation software that acquires, analyzes, reports on, and manages evidence from digital sources, including computers, mobile devices, IoT devices and cloud services. The Company’s software is used by more than 4,000 public and private sector customers in over 100 countries and helps investigators fight crime, protect assets and guard national security. For further information, please visit the Company’s website at www.magnetforensics.com.

About Grayshift
Grayshift is a leading provider of mobile device digital forensics, specializing in lawful access and extraction. Grayshift solutions are purpose-built to help law enforcement and government investigative agencies swiftly resolve critical investigations and ensure public safety. The company's innovative GrayKey technology provides same-day access, complete control, and comprehensive data extraction from mobile devices. Designed and assembled in the United States, GrayKey is trusted by over 1200 agencies across 35 countries worldwide. For more information, visit www.grayshift.com.

About Thoma Bravo
Thoma Bravo is one of the largest software investors in the world, with more than $120 billion in assets under management as of September 30, 2022. Through its private equity, growth equity and credit strategies, the firm invests in growth-oriented, innovative companies operating in the software and technology sectors. Leveraging Thoma Bravo’s deep sector expertise and strategic and operational capabilities, the firm collaborates with its portfolio companies to implement operating best practices and drive growth initiatives. Over the past 20 years, the firm has acquired or invested in more than 420 companies representing over $235 billion in enterprise value.¹ The firm has offices in Chicago, London, Miami and San Francisco. For more information, visit Thoma Bravo’s website at thomabravo.com and Twitter @ThomaBravo.

¹ Includes control and non-control investments.

The office address for the Rolling Shareholders is 2220 University Avenue East, Suite 300, Waterloo Ontario N2K 0A8.

Cautionary Note Regarding Forward-Looking Information
This press release contains “forward-looking information” and “forward-looking statements” (collectively, “forward-looking information”) within the meaning of applicable securities laws. Such forward-looking information or statements (“FLS”) are provided for the purpose of providing information about management's current expectations and plans relating to the future. Readers are cautioned that reliance on such information may not be appropriate for other purposes. Any such FLS may be identified by words such as “proposed”, “expects”, “intends”, “may”, “will”, and similar expressions. FLS contained or referred to in this press release includes, but is not limited to, statements regarding the proposed timing and various steps contemplated in respect of the Transaction, the holding of the Company’s Shareholders’ Meeting and the results of the completion of the Transaction, the combination of the Company and Grayshift, the resulting digital forensics platform, benefits to customers, future innovation, creation of value for stakeholders, acceleration of the future of digital investigations, and capturing growth opportunities.

FLS is based on a number of factors and assumptions which have been used to develop such statements and information, but which may prove to be incorrect. Although the Company believes that the expectations reflected in such FLS is reasonable, undue reliance should not be placed on FLS because the Company can give no assurance that such expectations will prove to be correct. Factors that could cause actual results to differ materially from those described in such FLS include, without limitation, the following factors, many of which are beyond the Company’s control and the effects of which can be difficult to predict: (a) the possibility that the Transaction will not be completed on the terms and conditions, or on the timing, currently contemplated, and that it may not be completed at all, due to a failure to obtain or satisfy, in a timely manner or otherwise, required shareholder, Court and regulatory approvals and other conditions of closing necessary to complete the Transaction or for other reasons; (b) risks related to tax matters; (c) the possibility of adverse reactions or changes in business relationships resulting from the announcement or completion of the Transaction; (d) risks relating to Company’s ability to retain and attract key personnel during and following the interim period; (e) the possibility of litigation relating to the Transaction; (f) credit, market, currency, operational, liquidity and funding risks generally and relating specifically to the Transaction, including changes in economic conditions, interest rates or tax rates; (g) business, operational and financial risks and uncertainties relating to the COVID-19 pandemic; (h) risks related to the Company resulting from the combination of the Company and Grayshift in retaining existing customers and attracting new customers, retaining key personnel, executing on growth strategies, advancing its product line and protecting its intellectual property rights and proprietary information; (i) risks related to the Company’s ability to prevent unauthorized access to or disclosure, loss, destruction or modification of data, through cybersecurity breaches or computer viruses disrupting the functionality of the Company’s products; (j) the impact of competition; (k) changes and trends in the Company’s industry and the global economy; and (k) the identified risk factors included in the Company’s public disclosure, including the annual information form dated March 9, 2022, which is available on SEDAR at www.sedar.com and on the Company’s website at www. magnetforensics.com. If any of these risks or uncertainties materialize, or if the assumptions underlying the FLS prove incorrect, actual results or future events might vary materially from those anticipated in the FLS. Although the Company has attempted to identify important risk factors that could cause actual results to differ materially from those contained in FLS, there may be other risk factors not presently known to the Company or that the Company presently believe are not material that could also cause actual results or future events to differ materially from those expressed in such FLS. The FLS in this press release reflect the current expectations, assumptions, judgements and/or beliefs of the Company based on information currently available to the Company, and are subject to change without notice.

Any FLS speaks only as of the date on which it is made and, except as may be required by applicable securities laws, the Company disclaims any intent or obligation to update any FLS, whether as a result of new information, future events or results or otherwise, except as required under applicable securities laws. The FLS contained in this press release are expressly qualified by this cautionary statement. For more information on the Company, please review the Company's continuous disclosure filings that are available at www.sedar.com.

No securities regulatory authority has either approved or disapproved of the contents of this news release. The TSX accepts no responsibility for the adequacy or accuracy of this release.

Read the release on the Business Wire website here.