Why Blackberry Is Buying Cylance for $1.4 Billion

On Friday, Blackberry Ltd. (BB) announced that it would acquire artificial intelligence (AI) company Cylance for $1.4 billion in cash. 

The deal is seen as helping the Canadian technology company carry out its transition from making smartphones to selling software and doubling down on emerging businesses such as self-driving vehicles. Acquiring Irvine, California-based Cylance will specifically work to build upon Blackberry's QNX unit, aimed at creating software for next-gen autonomous vehicles. 

Blackberry Doubles Down on Enterprise Services

In 2016, Blackberry, once the world's number one mobile brand, ceased manufacturing its keyboard-centric phones in-house, marking its larger shift to launching cybersecurity products such as enterprise platform security software and Internet of Things (IoT) device security. 

Cylance develops AI-driven cybersecurity products that prevent cyber attacks on companies. The firm, which recently considered filing for an initial public offering, as reported by Business Insider, lists roughly 3,500 enterprise clients -- including 100 Fortune 500 companies and government agencies -- that use its endpoint protection and antivirus solutions. Blackberry plans to integrate Cylance technology within its Spark platform in the future. 

As a result of the deal, which was paid in cash up front, Cylance will remain a separate business unit within Blackberry. The acquisition marks Blackberry's largest ever and is slated to close before February 2019, the end of the company's current fiscal year. 

The deal reflects Blackberry's willingness to pay up in order to expand into new markets, eating into a significant chunk of its $2.4 billion cash pile that it was holding prior to the deal's announcement. Cylance, founded in 2015 by former McAfee and Intel Corp. (INTC) executives and engineers, has raised nearly $300 million from backers including Blackstone, DFJ, Khosla Ventures, Dell Technologies, and KKR. 

"Cylance’s leadership in artificial intelligence and cybersecurity will immediately complement our entire portfolio, UEM, and QNX in particular. We are very excited to onboard their team and leverage our newly combined expertise. We believe adding Cylance’s capabilities to our trusted advantages in privacy, secure mobility, and embedded systems will make BlackBerry Spark indispensable to realizing the Enterprise of Things," said Blackberry's CEO John Chen. Since taking the helm in 2013 as part of a takeover by Fairfax, Chen has championed the broader transition to enterprise services. 

Shares of Blackberry, down about 2% on Monday morning at $8.79, reflect a 21.3% loss YTD, sharply underperforming the broader S&P 500's 1.3% return over the same period. 

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