Nuix puts data forensics on ASX map

Nuix has built its business model on sifting through this so-called unstructured data and it’s this ability that caught the attention of the millionaires factory – Macquarie Group – in 2011.

That investment has now seen Macquarie mint a billion-dollar payday as Nuix became a publicly listed company. The investment bank used the float to sell down its stake in Nuix from 76 per cent to 30 per cent. At the $1.8 billion market valuation, new investors are paying an eye watering $9 for every dollar of revenue Nuix will generate for the current financial year.

As far as technology valuations on the ASX go, Nuix still isn’t quite in the same league as Afterpay ($27 billion), Wisetech Global ($9.9 billion) and Xero ($19.6 billion). However, its platform, which straddles the world of data analytics and cybersecurity, is a unique proposition for Australian investors that have until recently paid little attention to the world of data analytics.

Nuix boss Rod Vawdrey says the company has over the last two decades fine-tuned its ability to unscramble unstructured data and put it in a “normalised state”, making it simpler for business and government to use.

“I think this is the critical thing about what really makes us special.”

He harks back to the company’s genesis, the original program designed to find inappropriate emails, to explain what the core technology does.

“Cyber attacks are real, the threat is increasing, and companies need to spend money and be prepared and to protect their customers”

ichard Bergman, regional head of EY’s Cyber team.

In the early days Nuix’s technology scoured through emails to identify anything that looked like skin tone in a photograph.

“That photograph could be embedded in an attachment in an email, it could be zipped up in a zip file, and it could be in a container in the cloud,” says Vawdrey.

“If that skin tone is a large part of that photograph, it’s a reasonable assessment, that that is potentially an inappropriate photograph.”

The product has evolved since then and a big component of Nuix’s success has been the ability of its core technology to convert unstructured data into one of two states, a zero or a one, and then index it.

This binary conversion puts structure around the data and makes it possible to analyse vast amounts of it in forensic detail and apply it to all sorts of applications. In the case of Utegate and Grech it helped determine whether the email, central to the affair, was real or forged.

The forensic accuracy of Nuix’s work is so exacting that the company says it is accepted as evidence in courtroom proceedings.

“If I take your emails, and I break them down into zeros and ones, and I can reconstruct them to their original form and retain that chain of custody it’s very, very powerful. That makes us very different to what you might think of when you think of a Google search,” says Vawdrey.

Nuix CEO Rod Vawdrey says the company will be focusing on expansion opportunities after the IPO. Credit:

It was Nuix’s role in the Panama Papers in 2016 which first thrust the Aussie group to prominence though. Nuix’s technology helped analyse terabytes of data, 11.5 million documents in all and showed how the rich exploit offshore tax regimes.

The breadth of applications open to Nuix now includes criminal and civil cases of law, litigation, counter-terrorism, human trafficking, child exploitation, cyber security and large scale data-intensive corporate tasks like the banking royal commission.

“Nuix was used by the regulator, Nuix was used by the major banks, Nuix was used by the law firms that were advising them,” says Vawdrey.

Despite the accolades and the growth potential at hand, it has not all been plain sailing in the lead up to the float though, not even for Macquarie.

In 2018, Macquarie veteran Anthony Castagna, who had been deeply involved in Nuix’s development even before Macquarie made its investment in the company, was jailed for tax evasion.

Nuix customers the Australian Tax Office and the Australian Federal Police were behind the conviction which was quashed on appeal last year. Castagna walked free and remained as Nuix chairman as recently as last month.

And it’s not the only legal headache that has troubled the group.

Fromer Nuix chief executive Eddie Sheehy is suing the company for a shareholding worth more than $118 million.

Fromer Nuix chief executive Eddie Sheehy is suing the company for a shareholding worth more than $118 million.Credit:Fairfax

Nuix’s former boss, Eddie Sheehy, is due to file documents next week supporting his $118 million legal claim against the company that he led for more than a decade before walking away from the business in January 2017, just as talk of a public float ramped up.

“The substance of the former CEO’s claim is that, as a result of a share split of one existing share into 50 shares completed by Nuix in March 2017, his options should now represent an entitlement to call for 22,663,650 unissued shares on a sale of Nuix’s business,” the company said in its prospectus.

“Nuix rejects the claim in its entirety and is defending those proceedings.”

But legal wrangles aside, Nuix’s story has clearly resonated with investors and the market opportunity for the company to capitalise on continues to grow.

According to IT industry analyst IDC, the end point security software market, which protects the entry points on a network like laptops and mobile devices, was worth $US12.8 billion in 2019. Digital forensics was worth $US1 billion and eDiscovery $US3 billion. But it is the $US10.5 billion Governance Risk and Compliance (GRC) sector that is the most promising market for Nuix.

“In growth opportunities, what’s emerging the fastest is this area of governance risk and compliance, which is the whole world of regulatory compliance,” he says.

It covers everything from a COVID scenario where people are trying to make sure that the right money ends up in the right hands for a benefits program, or ensuring cyber protection of an organisation.

This includes healthcare organisations using it for compliance and fraud checks, and pharmaceutical companies looking for intellectual property protection.

“All these areas are really huge growth opportunities,” says Vawdrey.

“And one of the things that we think is pretty cool about our business is that we can take products that were developed for narrow verticals like policing or e-discovery, and we can apply them to these massive growth opportunities around risk compliance and cyber response.”

Cyber security is certainly top of mind though for many companies. Toll Holdings was hit by a ransomware attack this year and more recently hedge fund Levitas Capital collapsed after another cyber attack.

“Cyber attacks are real, the threat is increasing, and companies need to spend money and be prepared and to protect their customers,” says Richard Bergman who is the regional head of EY’s Cyber team.

“We know from our own research that destructive cyber attacks have increased 59 per cent in the last year.”

But Nuix has put its focus more on detecting internal vulnerabilities and internal cyber threats like disgruntled employees.

One of its key executives is Keith Lowry who previously worked for the US National Counterintelligence following the theft of NSA documents by Edward Snowden.

“Insiders represent one of the greatest but rarely mentioned cyber security threats to government and corporate organisations because of their ability to access and exploit sensitive and critical-value data,” he told the Australian Financial Review in 2015.

Vawdrey says Nuix’s cyber security role is more in providing intelligence and investigative analytics than “perimeter defence” of networks.

“We’re on the other side of the cyber fence which is, what happened, why did it happen? How do we prevent that happening again? So learning investigative analytics, using processing is very important.”

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Data analytics startup Nuix brings in new recruit

It has around 1,000 clients in 79 countries, including the Australian Defence Force, US Securities and Exchange Commission, HSBC and Amazon. Nuix’s software was also used by the International Consortium of Investigative Journalists to review documents for the Panama Papers investigation.

The company recorded revenue of $175 million in the last financial year with a gross profit margin of greater than 85 per cent.

Missteps for the company have been rare but it did attract unwanted attention in 2018 when former chair and Macquarie adviser Anthony Castagna was found guilty of money laundering and tax evasion.

Unlike other home grown technology startups, which have often opted for venture capital funding Nuix has been largely self-funded and profitable since 2008. It has raised limited external capital other than for the acquisition of the Ringtail software business from FTI Consulting in 2018 for $US55 million ($76 million).

Macquarie owns about 65 per cent of Nuix and Armitage Associates, the Melbourne-based investment house controlled by Alan and Carol Schwartz’s Trawalla Group is also a substantial shareholder.


Nuix has engaged Morgan Stanley and Macquarie Capital to prepare for an IPO, which is expected to value the company at around $1.5 billion, and has gone out to fund managers to book in non-deal roadshow meetings from Wednesday September 2.

The company will canvas local and international fund managers with a strong emphasis on overseas fund managers, given that more than half of its clients are located internationally.

Nuix has made a big push in the United States where it set up a separate subsidiary to enable it to do business with government enforcement and security agencies.

Mr Ledgett, who will advise Nuix, retired from the secretive NSA in 2017 after spending almost 20 years there, a tenure that saw him lead the investigation of Edward Snowden’s surveillance leaks.

He said he looked forward to getting Nuix’s software into the hands of agencies that could “truly take advantage” of its powers.

“Nuix is ideally positioned to help government agencies with its dedication to creating superior software and mission of ‘finding truth in a digital world’,” Mr Ledgett said.

A spokesperson for Nuix said adding someone of Mr Ledgett’s stature and experience was an “incredible step forward” for Nuix.

“The board of Nuix is considering the next phase of the company’s journey, and how to take advantage of emerging opportunities to best accelerate its growth,” the spokesperson said. “This evaluation process is ongoing, and no final decisions have been made regarding an IPO.”

Nuix first unveiled its plans to float on the ASX in 2016 and a successful IPO would provide a bright spot in a lean year for listings on the exchange and enable the startup to join the ranks of listed technology unicorns Afterpay, Wisetech and Xero.

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