Pitch Best MidCap Deal 2022:  Recorded Future – Hatching 

Name of the deal: Recorded Future acquires Hatching  
Date announced: 08 July 2022  
Date closed: 08 July 2022  
Published value: 50 – 100 million euros  
Buyer(s): Recorded Future  
Target: Hatching  
Seller: J.S.P. Bremer Holding  

Involved firms and advisors    

Involved firms and advisors buy side:   
Stibbe (Legal advisory Corporate M&A and Tax Advisory)  

Involved firms and advisors target:   
Breliant, Financial Advisory Services (M&A Advisory), Greenberg Traurig (Legal advisory Corporate M&A)  

Involved firms and advisors sell side:   
Breliant, Financial Advisory Services (M&A Advisory), Greenberg Traurig (Legal advisory Corporate M&A)    

Pitch   

Brief description deal / Deal outline   
Hatching’s CEO Jurriaan Bremer has sold 100% of its shares in Hatching International B.V. and Hatching B.V. to Recorded Future Inc., a portfolio company of Insight Venture Management, LLC. The Amsterdam team also advised Jurriaan Bremer on its further involvement in the business of Recorded Future and its parent company, RF Ultimate Parent Inc.   

Founded in 2018 by Jurriaan Bremer, Hatching is a rapidly growing software development company that provides cybersecurity services focused on sandboxing. Hatching has extensive experience in the field after originally working on setting up and running Cuckoo installations for enterprises, before moving to develop a new solution which is better suited to the needs of modern companies. The company has quickly established itself as a leading player in sandboxing with its scalable Triage SaaS platform. Recorded Future is the world's largest intelligence company and has become an industry leader through its relentless focus on intelligence.   

Hatching's scalable malware analysis, Hatching Triage, will be integrated into Recorded Future’s systems to extend its intelligence coverage, creating a discerning feature for customers to identify and assess malware before allowing data to be further correlated and enriched in the Recorded Future intelligence cloud.     

Why should this deal win the Award for Best Mid-Cap Deal 2022?   
Recorded Future is the world's largest intelligence company and Hatching is the leader in malware analytics. This small-cap deal has a mighty impact on the global expansion of intelligence coverage with powerful malware analytics, which will give customers greater insight into live malware campaigns, improved attribution and a vital advantage against adversaries using malicious software to disrupt operations. The deal also fulfils Recorded Future's goal of giving organizations access to the most thorough intelligence so they can take quick, decisive action to deter and disrupt the virtual enemy. Because of the increasing frequency of cyberattacks, this type of software has become increasingly important. The combination provides Recorded Future's customers with the comprehensive intelligence available to identify, stop and respond to external threats while minimizing damage to their enterprises, a vital tool in today's intelligence-driven society. To facilitate the legal implementation of the deal, combined tax, corporate and management incentive teams of Willkie Farr & Gallagher, LLP and Stibbe NV on the buy side and their counterparts of GT Amsterdam and GT Delaware on the sell side advised the Seller and its financial advisor Breliant on an integrated transaction structure that included a partial roll-over and earn out mechanism which allowed employees of the target company to continue to be incentivized at a higher level through buy side participation. This structure paved the road for a smooth integration and cross border cooperation with existing businesses of the buyer, while safeguarding and continuing the existing participation of key employees of the target. To facilitate the legal implementation of the deal, combined tax, corporate and management incentive teams of Willkie Farr & Gallagher, LLP and Stibbe NV on the buy side and their counterparts of GT Amsterdam and GT Boston on the sell side advised the Seller and its financial advisor Breliant on an integrated transaction structure that included a partial roll-over and earn out mechanism which allowed employees of the target company to continue to be incentivized at a higher level through buy side participation. This structure paved the road for a smooth integration and cross-border cooperation with existing businesses of the buyer, while safeguarding and continuing the existing participation of key employees of the target. Another ingenious aspect of the valuation was the link between the floating value of the buyer in connection to the target in the valuation discussion. In connection to the implication of rapidly changing USD-EUR exchange rate given the circumstance that the Dutch based seller would be paid in USD, which given the partial rollover next to cash payments and earn out elements had to be taken into account during the time between signing the term sheet and actual execution of the transaction.  

Deal rationale:   
The rationale for the deal was the desire to combine Hatching's automated malware analysis capabilities with Recorded Future intelligence to create a comprehensive (global) intelligence coverage. With the integration of Hatching Triage into the Recorded Future ecosystem, an essential feature is created for customers where malware is identified and given a judgement before being further correlated and enriched in the Recorded Future intelligence cloud. Sandbox-generated data becomes a valuable data source within this environment and customers can benefit from wider coverage with global visibility of malware trends, their targets and sources. With access to all this new intelligence data, opportunities for more results and more detailed analysis have increased significantly.     

What is the impact of this deal for the company?   
With Hatching, Recorded Future extends its intelligence coverage with high-performance malware analysis, giving clients better visibility into active malware campaigns in the wild, improved attribution, and a critical edge against adversaries using malicious software to disrupt operations. The acquisition further delivers on Recorded Future's strategy to provide the most comprehensive intelligence, empowering organizations to take fast, decisive action to deter and disrupt the adversary.  

What is the impact of this deal for the direct stakeholders?   
Stakeholders benefit from the partial roll-over and earn out mechanism which allowed employees of the target company to continue to be incentivized at a higher level through buy side participation.  

What is the impact of this deal on society?   
Customers will have better visibility into active malware campaigns and gain an advantage over adversaries who use malicious software to disrupt their business operations.  

What was most complex about this deal?   
What was complex about this deal was its cross-border aspect. The shares in Hatching International B.V. and Hatching B.V. were sold to Recorded Future Inc, a US-based company, pursuant to a Dutch law governed SPA. However, because Hatching's CEO Jurriaan Bremer would continue to be involved in the activities of Recorded Future and its parent company, RF Ultimate Parent Inc, part of the transaction documentation was governed by US law. Finding the right balance between the two jurisdictions was both challenging and exiting.