Mimecast Steps Forward, but Has It Topped Out?

Cyber security champion Mimecast (MIME) may have just made its biggest move ever.

Is its performance now as good as it can ever be again? Mimecast recently announced plans to go private thanks to a deal with a private equity firm. This comes on the heels of new product announcements as well. It doesn’t seem like a particularly good time to be bullish or bearish with Mimecast, especially considering the company’s current state.

Looking at Mimecast’s stock charts for the year so far shows a company on the rise up to what may now be its absolute top. The company kicked off 2021 on a decline after a significant run-up in December 2020.

The company took about two weeks to not only lose the gains realized in December, but also break new ground. It would take about four months — into late March — for the company to hit its lows for the year, however.

That was when the company’s share price took off. In fact, the company would not again see significant downward pressure until mid-September. Even then, the losses would prove transitory as the second half of October was almost exclusively upward trends. A small slip took place in November, which brings us to today. (See Analysts’ Top Stocks on TipRanks)

The big news for Mimecast is that it’s agreed to go private. The Permira private equity firm has agreed to buy Mimecast in a deal valued at $5.8 billion. Since the deal is all-cash, that values Mimecast at $80 per share, reports note. The deal also comes with a go-shop period lasting 30 days that will ultimately expire on January 6.

Though it might seem like a done deal, reports suggest that Thoma Bravo was actively building a $35-billion fund to engage in tech company buyouts as well. Private equity firms have been downright frantic in 2021, especially in buying cyber security operations. This in turn may mean that go-shop period could bring in a new offer.

Wall Street’s Take

Turning to Wall Street, Mimecast has a Moderate Buy consensus rating. That’s based on five Buys and eight Holds assigned in the past three months. The average Mimecast price target of $81.17 implies 2.4% upside potential.

Analyst price targets range from a low of $70 per share to a high of $93 per share.

Take a Chance on Topping Out?

Under normal circumstances, I would have been bullish on Mimecast, if only somewhat. The company had been making big gains all year, which put it in a rather pricey position for anyone interested. Watching for a dip to buy in would have made sense as well. After all, the company rolled out its Mimecast for Secureworks Taegis XDR on Tuesday.

That’s good news for Mimecast, and also good news for Secureworks (SCWX), which now has a stronger system operating. We all hear scads of stories, on a regular basis, about ransomware strikes and virus-related shutdowns of major operating systems.

Protecting against these is increasingly vital. With businesses still on a remote working footing to one degree or another, and workers still very enthusiastic about the concept, there are more opportunities than ever to strike at systems. Their protection is crucial to keeping these systems — and their businesses — running.

However, the buyout fundamentally changes things. If nothing changes as a result of the go-shop period, or the shareholder vote, or any regulatory issues, then Mimecast is getting sold at $80 a share to Permira.

It’s a safe bet that few will be interested in paying over $80 per share for a stock that’s about to get universally sold for $80 per share to a private equity company. Since it’s an all-cash deal, there won’t be any chance of buying into Permira via the back door of owning Mimecast, either.

Concluding Views

Under normal circumstances, Mimecast might have been a good buy. Its recent expansion to work with Secureworks likely would have helped it gain some traction. Though its price was high, there was some room for growth as well. The specter of the Permira buyout, though, hangs over the company like the Sword of Damocles.

Those buying in on Mimecast right now bet on two long shots simultaneously. One, that the Permira buyout somehow falls through in the next month. Two, that it falls through in a fashion that doesn’t hurt Mimecast in the process. It’s for that reason I can’t recommend getting in on Mimecast right now, and may never recommend getting in again.

Disclosure: At the time of publication, Steve Anderson did not have a position in any of the securities mentioned in this article.