M&A attacks in the Cyber Security Industry

August 9, 2016 | By K. Joseph Breheny

Cyber security firms are responsible for securing other companies from cyber attacks with antivirus software, SSL certificates etc. But now they themselves are reportedly vulnerable to attacks, but of a different kind. As per recent reports cyber security firms are now very much vulnerable to M&A (Merger and Acquisition) attacks.

Private equity buyers are reportedly hunting for cash-generating companies in the cyber security sector. Investors are sort of vying for consolidation in the fragmented industry. PrivCo, the New York-based private company research firm, have researched on this and they say-

“The IPO market has been relatively nonexistent for IPOs due to macroeconomic forces and overall negative market sentiment towards any form of IPO in 2016, cyber or otherwise…This has led to a significant uptick in cybersecurity M&A transactions (reported to reach $9Bln for 2016). VCs invested in cyber companies with a backlog of funding ($1.8bln in 2013, $2.1bln in 2014, $3.4bln in 2015) are looking for an exit and will continue to take this route as long as there are corporate buyers… The corporate buyers will pay a premium (as compared to the public markets) for private cybersecurity firms, picking off the best early on. This will lead to an eventually leveling off (in frequency and premium) for cyber M&A. Finally, fundings will be down for the second half of 2016 as investors become frustrated with their lack of opportunities for exit.”

This is not a sudden phenomenon. PrivCo has been studying this trend for quite some time and has been noticing changes. A PrivCo post on this says- “At PrivCo, we’ve been actively tracking the cybersecurity market for over four years. What has happened in this space is nothing short of a phenomenon. In the past half-decade, the cybersecurity market has attracted the eyes of top-tier venture capital investors such as Sequoia Capital, SV Angel, and even Google Ventures. It is projected to grow to $175 billion by 2020 (from $75 billion in 2015), a figure that investors, consumers, and business are not willing to overlook. It is thus no surprise that this sector has seen so much attention in the last two years.”

In the first half of 2016, Symantec bought Blue Coat for $4.65 billion and antivirus vendor Avast Software is buying rival AVG Technologies for $1.3 billion in cash. Vista Equity Partners acquires Ping Identity, which manages employees’ digital identities, for an undisclosed sum.

So, how is the future likely to be? PrivCo has this to say- “Cybersecurity will still continue to be one of the most attractive investments in the coming decade. PrivCo conjectures, however, that there is a great deal of turmoil ahead.”

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