Tanium Gives Shareholders Another Opportunity to Cash Out

(Bloomberg) -- Tanium Inc.’s chief has been openly entertaining the prospect of an initial public offering for the last couple years. In the meantime, the decade-old software company has made arrangements for its founders, employees and early investors to sell hundreds of millions in stock.

The company disclosed another such deal on Tuesday, this time for a $200 million purchase of common stock led by Wellington Management. It’s the third transaction of this type in two years and brings the total pool set aside for shareholder sales to $475 million.

Capital designated for Tanium stockholders to cash out even exceeds the amount the company has raised for its own operating expenses since its founding in 2007. That sum is $307 million. The last time Tanium received an investment to spend on operations was in late 2015, according to research firm PitchBook.

Although so-called secondary stock sales have become more common among technology companies that choose to put off public listings, the extent of Tanium’s use of these deals is unusual, especially as the market for tech IPOs is heating up. So far this year, the number of tech and telecom offerings in the U.S. is at the highest level since 2014, and more are expected to follow suit, including Lyft Inc., Anaplan Inc. and Qualtrics LLC.

Fazal Merchant, who serves as Tanium’s chief of operations and finance, declined to comment on the timing of an IPO or even whether the company would pursue such an event. He would only say Tanium is “better prepared to be a public company than some public companies already out there.”

A father-son team, David and Orion Hindawi, started Tanium in 2007. The Emeryville, California-based company makes cybersecurity software that allows customers to see all devices connected to a network and determine which may be vulnerable. The company’s popularity among corporate security departments exploded over the past five years, feted by investors such as Andreessen Horowitz, which described the software as “magic.” Orion Hindawi, the chief executive officer, began teasing plans for an IPO in 2016.

In the process, Hindawi developed a reputation among staff and business partners for being mercurial. He was accused of berating and insulting employees, resulting in mass defections from the executive ranks, and enraging others who told Bloomberg they had been deliberately fired just before their stock options were due to vest. The company also drew fire for exposing information about a hospital’s computer network without permission for sales demonstrations. Hindawi apologized for being “hard-edged” and said he corrected the sales practice. The company disputed a pattern of firing employees before their options vest.

This year, Tanium found itself at the center of an audit by the Pentagon’s watchdog. The Defense Department’s inspector general began reviewing the process through which Tanium and partner World Wide Technology won a $750 million contract last year to secure computer networks used by the U.S. Army. The office hasn’t updated the status of the investigation since April. Merchant declined to comment but said he was “completely comfortable” with Tanium’s role in the contract.

Despite those challenges, Tanium said investors continue to place a high value on its business. On Tuesday, the company said the latest shareholder sale increases Tanium’s valuation to $6.5 billion from $5 billion earlier this year. Baillie Gifford & Co. and Adage Capital LP joined Wellington in the deal.

The transaction won’t inject any additional capital into the business. Tanium said it had $320 million in cash and equivalents as of Jan. 31. Merchant said Tanium generates positive operating cash flow and declined to comment on profitability. Andreessen Horowitz, a major backer, said it’s holding onto its shares.

Tanium initially sought to raise $400 million for the deal but settled on half that amount, according to a securities filing on Tuesday. Merchant said Tanium isn’t looking to raise the balance because the company is “happy” with its new roster of investors.

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