IPO Report: McAfee IPO: 5 Issues You Should Know Concerning the Safety Software program Firm

The McAfee logo will be displayed at the Mobile World Congress in Barcelona on February 25, 2019.

(Agence France-Presse / Getty Images)

McAfee Corp. plans to return to the public market after nearly a decade as a private company, but the security software company is re-emerging as a structured entity that needs a team of lawyers and accountants to really explain this.

McAfee on Tuesday

has set a planned IPO price range of $ 19-22 per share after an initial public offering was filed in late September. The company plans to list on the Nasdaq under the ticker "MCFE". Underwriters include Morgan Stanley, Goldman Sachs, TPG Capital, BofA Securities and Citigroup. The initial public offering comprises 37 million shares or 42.6 million if subscribers exercise all options to cover the total allotments.

According to reports, McAfee plans to evaluate the IPO late Wednesday. Trading is scheduled to start on Thursday.

Here are five things you should know.

There are a few fingers in the cake

Just over a decade ago, Intel Corp.
+ 0.77%
announced it would buy McAfee for $ 7.7 billion, which it completed the following year. About five years later, Intel sold a controlling stake in McAfee to private equity firm TPG for $ 4.2 billion. The following year Thoma Bravo signed a contract with TPG to take a minority stake.

Rumors that McAfee would go public have been circulating for more than a year, but its owners decided to jump into a strong year for IPOs. The Renaissance IPO ETF
is up 80% this year, compared with an increase of 34% in 2019 and a loss of 18% in 2018. The S&P 500 Index
is up 8% this year, after up 29% in 2019 and down 6% in 2018.

Ultimately, TPG, Thoma Bravo and Intel will control approximately 82.2% of the voting rights.

A confusing warehouse structure

After the IPO, there will be two classes of shares, up to 166.7 million Class A shares and up to 264.7 million Class B shares, and each of these classes will have one vote.

This is where simplicity ends, however, as these class differences are confused with a witch's brew from exchanges of management incentive units and LLC units and reorganization transactions, as shown in this table from the company's filing with the Securities and Exchange Commission.

How all the moving parts fit together is not easy to infer even after several readings of the SEC filing. The bottom line is that the public shareholders, with only 8.6% of the voting rights, seem to receive an economic interest of 22.4% in the company.

Profitable this year until you consider the reorganization

According to McAfee's S-1 filing, the security software company had sales of $ 2.64 billion in 2019, a loss of $ 236 million. For the first 26 weeks of 2020, the company had sales of $ 1.4 billion and net income of $ 31 million, assuming you adjust the numbers for massive restructuring and other factors

Including the reorganization transactions and other pro forma adjustments, McAfee posted a loss of $ 3 million in the first half of 2020.

Much of the supply is used to pay off a fraction of the debt

McAfee plans to use approximately $ 525 million to "repay all outstanding commitments related to our Second Lien Term Loan," and estimates that if the share price is in the middle of the range, or $ 20.50 per share Net income of approximately $ 612 million is achieved when subscribers exercise their full stock options.

However, this is just a drop in the ocean for McAfee's debt after the private equity flip. McAfee lists debts of $ 4.66 billion in its financial statements, which it estimates should be reduced to $ 4.15 billion after the offer.

Founder not a risk factor

The recent arrest and federal charges against John McAfee, who founded the company in 1987 and left the company in 1994, pose no risk to the IPO, according to the SEC filing.

In his indictment, the Justice Department found that from 2014 to 2018, when John McAfee allegedly failed to file a tax return, “received no income or had no connection with the antivirus company that bears his name”. In 2017, John McAfee and Intel resolved a lawsuit in which McAfee agreed not to use its name or trademark in any security-related products or services.

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