Nellore Issues Information Circular, Demands Equal Treatment and Full Value for All Magnet Forensics Shares

Shareholders urged to Vote the GOLD Proxy AGAINST the Takeover of Magnet Forensics

PALO ALTO, Calif., Feb. 27, 2023 /PRNewswire/ – Nellore Capital Management LLC (“Nellore”), the largest holder of subordinate voting (“SV”) shares of Magnet Forensics Inc. (TSX: MAGT) (“Magnet”), today issued an information circular to explain its concerns about a proposed unequal and underpriced takeover of Magnet.

Nellore, owner of approximately 11% of Magnet’s SV shares, explained that under the unequal terms of the proposed takeover, three Magnet insiders have cut a different and better deal for themselves. Nellore has been informed that other institutional shareholders oppose the takeover and urged all shareholders vote the GOLD PROXY to block the deal.

Nellore also urged shareholders to carefully read its information circular, which is being mailed to them and has been filed under Magnet’s SEDAR profile at The information circular is also available at, along with other Nellore materials prepared to oppose the takeover.

You are encouraged to vote well before the deadline of 2:00 p.m. (Toronto time) on March 21, 2023. Shareholders who need assistance voting their proxies should contact Carson Proxy Advisors: North American Toll Free Phone: 1-800-530-5189; Local (Collect outside North America): 416-751-2066; Email: [email protected] 

Nellore’s letter to Magnet’s shareholders is provided verbatim below.

Dear fellow shareholders,

My name is Sakya Duvvuru. I am the Founder and Portfolio Manager of Nellore Capital Management LLC, the largest outside holder of Magnet Forensics Inc. with 1.3 million shares. I need your help to block the proposed unequal and underpriced takeover. Please vote AGAINST using only your GOLD proxy.

As you know, Magnet has a bright future ahead with growing profits. But, three insiders and a large private equity firm are now asking you to give up those profits for their benefit. The three insiders get to convert (or roll) the majority of their shares into a new entity. They will enjoy supercharged returns for many years as Magnet is combined with Grayshift LLC, an innovative mobile device extraction specialist.

However, we, the subordinate voting (SV) shareholders, are excluded from the rollover. Instead, we only get an unreasonably low cash price, C$44.25, for our shares. You can see Nellore’s estimate of the disparity in the chart below.

Nellore Issues Information Circular, Demands Equal Treatment and Full Value for All Magnet Forensics Shares (CNW Group/Nellore Capital Management LLC)

Nellore already has significant votes and momentum in the AGAINST campaign. Still, every vote is needed to win, especially given the tactics employed by Magnet: opportunistic timing, sneaky messaging, even bought votes, all for the benefit of three insiders and their preferred PE partner. All at our expense.

Who Am I?

First, a little bit about me. I immigrated to the United States with my parents from India at age 9. After starting my career in investment banking and working at a VC firm, I decided to pursue my dream of becoming an entrepreneur and in 2018, founded Nellore Capital. Nellore is my hometown in India, and to this day, my investment firm is just a two-man shop: me and my operations right-hand man, Toronto-based Zo Mardhani.

Last year in April, just days before my firstborn was due to join the world, I flew to Canada to meet with the Magnet executive team. I thought the company had so much potential that I convinced my 38-week pregnant wife to let me take an overnight trip from San Francisco to Waterloo. It turned out to be one of the best meetings of my 10-year investing career and confirmed that Magnet had all the ingredients to be a long-term winner. I doubled Nellore’s original position over the next few weeks and became the largest outside shareholder of Magnet stock.

An acquisition is usually reason to celebrate: the highest bidder is willing to pay a premium for the opportunity to consolidate all of the shares. Instead, the decisionmakers we rely on to find the best deal have cut a different and better deal for themselves. I was initially disheartened, then angered. Ultimately, I made my opposition public. Fortunately, we have the power to block this deal, and we should! Let’s protect our own interests when those whom we entrusted to do so have failed us.

Why the Deal is Unequal

The rollover by the three Magnet insiders creates unequal access to huge synergistic value. Magnet’s management understands the monumental scope of the synergies from combining the two companies and always desired Grayshift. Magnet tried quietly to acquire Grayshift in September 2021 and again in Q1 2022. Unfortunately, Magnet was outbid by Thoma Bravo, the largest US software private equity firm.

Now, Thoma Bravo proposes to buy all of our shares but let Magnet insiders roll a majority of their shares into the combined company and benefit from the synergies and growing profits. Here is the problem: the Rolling Shareholders now have no interest in selling to the highest bidder because they want to combine with Grayshift, which is only owned by one bidder, Thoma Bravo.

The solution is to level the playing field and offer all shareholders the same opportunity to roll our shares. The Rolling Shareholders could have advocated to treat us all the same with Thoma Bravo, but didn’t. They could have kept the company public and invited Thoma Bravo to contribute Grayshift and become an investor, but didn’t. In the absence of equal and fair treatment, shareholders must vote AGAINST until we are all offered a price sufficient for the bright future with which we are being forced to part. If the insiders were also selling all of their shares, as we are being asked to do, they would not accept anything less than C$60.

Why the Price is Too Low

Nellore’s Information Circular offers many methodologies to demonstrate why C$44.25 is too low. On February 9, 2023, in the first news release opposing the takeover, Nellore published C$60 to C$70 as its estimate for the value of Magnet shares, and since then new evidence has shown the estimate to be very conservative.

For example, one of the assumptions Nellore used to establish intrinsic value was its expectation that Magnet’s free cash flow would reach US$50 millionUS$60 million in 2024. Nellore didn’t know it then, but Magnet’s management expected even more – US$65 million! Now the secret is out.

Based on management’s own forecast, not Nellore’s, the takeover multiple is just 19x next year’s free cash flow for a business growing revenues 35%. That is amongst the lowest prices paid for a public software buyout in ten years, especially given the health and growth rate of Magnet’s business.

Beyond the unequal treatment and the inadequate price, the takeover has other red flags:

  • Jim Balsillie Gave Up Independence For Profit: Prior to the takeover announcement, I believed Jim Balsillie would champion the interest of all shareholders as Independent Board Member, as Chair of the Board, and as a significant owner with 14% of the shares. I was wrong – he abandoned us and became a Rolling Shareholder. That option, according to Magnet’s disclosure, was not initially offered to him by Thoma Bravo. Given his financial acumen, evidenced by his wealth and experience, there should be no question that his choice is proof that the cash offer of C$44.25 is insufficient and inferior to the rollover.
  • Hidden Information & Sneaky Messaging: Magnet management’s financial performance forecast, including the 2024 cash flow cited above, was secret before February 22, 2023 and has never been issued in a Magnet news release. Nellore found it buried on the 195th page of Magnet’s 202-page information circular. The forecast is far, far higher than the overly-conservative and stale street consensus that Magnet is still using to justify the deal. Management and its advisors found creative ways to cherry pick analyses, dates and metrics to make it seem like the price is fair, even though it is not.
  • Opportunistic Timing: Magnet should have waited to negotiate the transaction until after Q4 results are known. Magnet’s stock price increased by 29% in the week after Q3 2022 results were reported, justified by an increase of 24% in the consensus estimate for 2023 EBITDA. Management’s estimate for 2023 EBITDA of US$30 million is 15% above consensus estimates and would likely have resulted in a 10-20% increase to the stock price upon disclosure. Of course, the Rolling Shareholders and Thoma Bravo knew this, and wanted to announce the takeover before Q4 results affected the market price. Worse, they hid this 2023 Management estimate when we asked for it in our follow up press release on February 13, 2023 and they didn’t move the shareholder record date either.
  • Bought Votes: Of the 11.9 million SV shares, 1.3 million held by Magnet employees are already locked up by voting agreements in support of the transaction. Even though the company claims these employees are acting in their sole interests as shareholders, Nellore suspects that they were strong-armed into signing these agreements. The company should clarify what benefits, if any, these employees were promised after the deal closes.
  • Flawed Process: Magnet says it contacted six strategic potential buyers but Nellore believes none of them were realistic bidders because they would have lost their Switzerland status by buying one of their partners and favoring them over other partners. Moreover, there are likely 25 potential financial buyers that would have liked to look at this deal and instead it was only presented to two. Both were interested to dig deeper but seemed to have learned that it is unlikely they would win, with the fix in for Thoma Bravo (given the synergies and upside it brings to the Rolling Shareholders)

Lastly and maybe, most insultingly, there are rumors from press and industry sources that Rolling Shareholders and Thoma Bravo are already planning an Initial Public Offering for the combined Magnet-Grayshift (this time on the NASDAQ) as soon as in a year’s time! Nellore would expect the stock of the combined company to be trading between CAD $81 – 96 per share or CAD $89 at the midpoint, a nightmarish 100% upside to what shareholders are being asked to sell shares at today. Don’t let this happen. Vote AGAINST!Together, We Can Stop This Unfair Transaction

Nellore is taking every step and opportunity to block this transaction. Nellore tried to privately engage with the Special Committee. Nellore publicly raised its concerns in news releases on February 9, 2023 and on February 13, 2023. Nellore even appeared in court on February 15, 2023 to share its views with a judge. Now, Nellore is soliciting proxies. If for some reason shareholders vote in favour of the transaction, Nellore will consider exercising all of its rights as a shareholder including by challenging the fairness of the transaction in court and by exercising dissent rights.

Nellore has the means and willingness to fight and win, with your help to put the interest of all shareholders across the finish line. The deal can be blocked by 5.95 million votes, representing a simple majority (50% + 1) of the 11.9 million SV shares eligible to vote. Nellore alone owns 1.3 million SV shares, equivalent to 22% of the potential blocking position. Several large, sophisticated SV shareholders have told us, and Magnet, that they are also opposed and will be voting AGAINST. Support behind a no-vote is building. Join us.

Don’t Let Magnet’s Insiders Profit at Your Expense. VOTE AGAINST.

For three Magnet insiders, the takeover is fantastic. Magnet’s founders are visionaries and Nellore does not begrudge them the chance to profit. This transaction in its current form is also a great deal for the buyer, Thoma Bravo, who is well aware of the upside potential it is getting by paying a very low price for our shares. While we can’t blame them, we can certainly stop them.

The Rolling Shareholders and Thoma Bravo are simply putting their financial interest first by misleading you about the merits of the unfair transaction. Shouldn’t you put your financial interest first by voting against? Vote AGAINST using ONLY the GOLD proxy. Vote today!

If you have any questions or are even half-heartedly thinking about supporting the transaction, don’t hesitate to call me directly on my personal cell phone number at +1 (501) 551 0128 or email me at [email protected]. I will pick up every call and respond to every email, no matter how big or small your ownership. There is no reason for any individual SV shareholder to vote for the transaction.


Sakya Duvvuru
Founder & Portfolio Manager,
Nellore Capital Management LLC


Goodmans LLP is serving as legal advisor to Nellore. Carson Proxy Advisors is acting as strategic shareholder and advisor and Longview Communications and Public Affairs is acting as communications advisor to Nellore.

Disclaimer for Forward-Looking Information

Certain information in this news release may constitute “forward-looking information” within the meaning of applicable securities legislation. Forward-looking statements and information generally can be identified by the use of forward-looking terminology such as “outlook”, “objective”, “may”, “will”, “expect”, “intend”, “estimate”, “anticipate”, “believe”, “should”, “plans”, “continue”, or similar expressions suggesting future outcomes or events. Forward-looking information in this news release may include, but is not limited to, statements of Nellore regarding the meeting and how Nellore intends to vote on the resolutions proposed by Magnet. Although Nellore believes that the expectations reflected in any such forward-looking information are reasonable, there can be no assurance that such expectations will prove to be correct. Such forward-looking statements are subject to risks and uncertainties that may cause actual results, performance or developments to differ materially from those contained in the statements. Except as required by law, Nellore does not intend to update these forward-looking statements.

A copy of this news release may be obtained on Magnet’s SEDAR profile at The head office of Magnet is 2220 University Avenue East, Suite 300, Waterloo, Ontario, N2K 0A8. The address of Nellore is PO Box 1237, 855 Jefferson Avenue Redwood City, CA 94063-9992.

About Nellore Capital Management LLC

Nellore Capital Management invests in entrepreneurially managed, competitively advantaged technology businesses globally for the long term.

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Nellore Issues Information Circular, Demands Equal Treatment and Full Value for All Magnet Forensics Shares WeeklyReviewer

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