Okta to Buy Security Software Maker Auth0 for $6.5 Billion

(Bloomberg) -- Okta Inc., a maker of identity-verification software, agreed to buy smaller rival Auth0 for about $6.5 billion in stock, seeking to solidify its position in the growing market for digital authentication security services.

The deal price for closely held Auth0 is based on an Okta share price of $276.21, and the transaction is expected to close in the quarter ending July 31, according to a statement Wednesday. Last year, Auth0 raised $120 million in a round that was led by Salesforce Ventures and valued the Seattle-area company at $1.92 billion.

Customers use San Francisco-based Okta's security software to support workers who need to access corporate systems, students who must use remote-learning apps and consumers who are required to authenticate their identities online. Okta, which counts Microsoft Corp. as one of its main rivals, saw shares more than double last year as the pandemic-related shift to home-based working and learning boosted the need for users to securely get in to apps and networks.

From March through July, Okta's main product, called Identity Cloud, was used almost 16 billion times to access an app or website. The multi-factor authentication service saw usage nearly triple in the period compared with a year earlier, and it hit a single-day peak of 145 million unique logins, the company said last year.

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Okta shares dropped about 11% in extended trading Wednesday following the deal news and the company's earnings report. The software maker gave a first-quarter revenue forecast that was on the low end of analysts' projections.

Auth0 will operate as an independent business unit within Okta and both companies' products will be supported and developed going forward, Okta said, giving customers the ability to choose which one is the right fit.

Other investors in Auth0 include K9 Ventures, Sapphire Ventures and Bessemer Venture Partners. Bessemer put in more than $90 million and amassed a 20.7% stake.

Morgan Stanley advised Okta on the deal, and Qatalyst Partners served as financial adviser to Auth0, the companies said.

In its fourth-quarter earnings report, Okta said sales jumped 40%. Profit excluding some costs was 6 cents a share for the period, topping the average analyst estimate for a loss of 1 cent.

Still, for the first quarter, which ends in April, the company said it may post a loss of as much as 21 cents, wider than the 7-cent loss analysts expected, according to data compiled by Bloomberg. First-quarter sales will be $237 million to $239 million, compared with analysts' average prediction of $239.3 million.

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