Okta co-founders Frederic Kerrest and CEO Todd McKinnon at the top right sign the agreement to acquire Auth0 with the co-founders CEO Eugenio Pace at the bottom left and Matias Woloski.
Okta
The publicly traded identity management company, Okta, acquires one of its main challengers, Seattle’s native start-up Auth0, in a $ 6.5 billion securities deal, the companies announced Wednesday.
The transaction will provide Auth0 with a fixed number of Okta shares at a price of $ 276.21 each, the companies said. Okta’s shares had closed on Wednesday at $ 241 per share, giving it a market capitalization of $ 31 billion. But shares traded more than 11% after hours, as Okta also reported quarterly revenue of $ 234.7 million, up 40% year-over-year, on net non-GAAP revenue of $ 8 million on Wednesday .
In an interview, Okta CEO Todd McKinnon said the move was part of the company’s drive to become one of the “five or six primary clouds” that customers it will target as to market leaders, citing Microsoft, Salesforce and Zoom as other candidates for such a state.
“For us, identity has to rise to be one of those primary clouds, and if it doesn’t, it will only be subsumed into other clouds and Okta will not reach its potential,” McKinnon said.
Primarily a business tool for companies to help track and manage the identities and credentials of their employees when using work apps, Okta gets Auth0 a service that focused more on how companies interact with their customers, according to McKinnon, with his eyes set on the developer community.
In other words, while Okta sells from top to bottom, to information managers or technical leaders, Auth0 has built its business from the bottom up.
At Auth0, co-founder and CEO Eugenio Pace said the two companies “agree on a vision” for this cloud of identity of the future, or what Pace calls an “identity operating system.” In a common saying for high-growth technology startups that join larger rivals, Pace noted that Okta was at least a few years ahead of Scale Auth0; Joining forces, he insisted, would advance the Auth0 roadmap by five to ten years.
“What I am passionate about is that these companies are compatible, that identity is not a division, a part of another group or a necessary evil. That’s all we do. So, together, we have this opportunity to move the needle in terms of what we can offer our customers, ”said Pace.
Auth0 joins a company that reported revenue of $ 835 million for its most recent fiscal year and expects revenue of $ 1.08 million to $ 1.09 billion by 2022. Meanwhile, Auth0 is expected to reach a revenue execution rate (a 12-month projection based on the most recent pace of the month) of more than $ 200 million at the end of the year, McKinnon said.
Forbes had first heard rumors that Auth0 was on sale several weeks ago, with two sources saying Okta had appeared as the favored buyer. But the deal did not close quickly, as Auth0 considered other options, including other potential buyers or continuing on the path to IPO. An Auth0 investor who asked to remain anonymous said he expected the company to pursue a public offering, given its potential and recent favorable market valuations of public cloud computing stocks.
Founded in 2013, Auth0 had raised more than $ 330 million from venture capital investors who had recently valued the company at about $ 1.9 billion in July 2020. Notable investors included Bessemer Venture Partners, Trinity Ventures , Meritech Capital, Sapphire Ventures and Salesforce Ventures. The company appeared at number 19 on the Cloud 100 list of the world’s leading private cloud companies in September.
Antitrust concerns also slowed the process, a source said Forbes before the announcement of the agreement. The acquisition, although agreed to by both boards, is subject to regulatory approval, but is expected to close in the first half of the year, the companies said.
Asked what he would tell employees and supporters who could expect Auth0 to test public procurement as an independent company, Pace said the result was “fantastic” for all stakeholders. “I certainly don’t see this as an outlet for Auth0,” he added. “We just scratch the surface of what we do.”
Sign up today at Midas Touch, your weekly guide to the world of venture capital and start-up financing, with exclusive interviews, original reports and analysis and more.