PwC helped BlackBerry undertake extensive due diligence of the proposed Cylance deal by identifying the key business and technology drivers, giving BlackBerry confidence that it was making a sound investment.
Client: BlackBerry Limited
Our Role: We helped BlackBerry undertake extensive due diligence of the proposed Cylance deal. This due diligence proceeded along three main areas: technical, commercial and financial, and it primarily involved BlackBerry’s CTO, COO, CFO and its Corporate Development organizations.
Industry: Technology, Media and Telecommunications
Services: Accounting advisory services, Capital markets advisory, Acquisitions, Deals strategy, Valuations and Analytics
Consumers likely remember BlackBerry as the must-have handset of the early 2000s – until the company’s hardware business shifted overnight along with the changing smartphone industry. As a result, BlackBerry, under the leadership of John Chen, bet everything on a massive pivot, pushing heavily into a variety of software products and related services. The move was a success: software and services now account for more than 90 percent of the company’s revenues.
With a number of successful acquisitions completed and a substantial amount of cash on hand, BlackBerry began considering another target company: Cylance, a startup which would give BlackBerry a strong foothold in the enterprise security space. Cylance’s product used next-generation artificial intelligence technology instead of the more traditional rules-based systems to detect malware, at the time giving it a strong differentiation in the market.
The catch: With a price tag reaching into the billions, the Cylance acquisition would be BlackBerry’s largest purchase to date, by far. What BlackBerry needed was a strong, external point of view that could help analyze the target company, gauge whether its technical basis was sustainable, consider its position in the security market landscape and – most importantly – help determine whether the price was a fair one.
PwC engaged with BlackBerry, a longtime client of the firm, to help undertake extensive due diligence of the proposed deal. This due diligence proceeded along three main areas: technical, commercial and financial, and it primarily involved BlackBerry’s CTO, COO, CFO and its Corporate Development organizations.
“PwC is differentiated from other tech M&A consulting firms because of our ability to help deliver an integrated perspective linking insights on a target’s technology and addressable markets with its actual financial and operating performance.”
“PwC’s deep technology and financial expertise reinforced our decision to proceed with the transaction after they put together a fair and transparent analysis of the deal.”
From a technical standpoint, the Cylance deal presented some unique challenges. For starters, evaluating AI-based technologies is complicated, as due diligence requires looking at the core technology as well as the data behind it. Overpromising on capabilities is common in the AI space, and it requires a group of specialists collaborating to determine how unique and sustainable an AI-based product actually is. As well, Cylance was in the process of rearchitecting certain elements of its technology while simultaneously expanding its feature set.
PwC also performed a commercial analysis to help BlackBerry understand Cylance’s place in the market. This involved looking at how the target had grown its business to date and what its long-term prospects were in the market for continuing that growth. PwC helped analyze its product roadmap and how those product releases would drive the target’s growth. Did Cylance have the right teams in place and the right technical capabilities to realize its ambitions? And, critically, how were competitors in this market responding to Cylance’s technology with their own AI-driven security tools? If BlackBerry were to acquire the target firm, it had to be sure that Cylance represented a solid value.
Lastly, PwC helped perform an in-depth financial due diligence on the proposed deal, a key aspect of any potential acquisition. This included a high-level view of Cylance’s overall current financial condition as well as its prospects looking forward, in order to determine the appropriate value for the company. Drilling down, PwC also helped analyze trends in the target’s product pricing and whether competitive pressures would soon drive those prices down. With Cylance considering an IPO if the acquisition did not take place, the engagement was quite time sensitive.
When our due diligence work was complete, PwC was able to help identify the key business and technology drivers, giving BlackBerry confidence that it was making a sound investment.
For example, PwC helped identify that Cylance had a very strong technical position but noted that a migration to a complex new technology platform could be delayed, which may impact overall sales and market share. PwC also helped analyze the competitive market and noted pricing pressures, driven by rising competition which was narrowing the technology gap, and these were likely to impact profitability in the short term.
On the whole, the analysis of the deal was net positive. BlackBerry's leadership considered PwC's findings and they decided to proceed with the acquisition quickly.
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