Crunch Time: The Battle for Cybersecurity M&A

2016 is promising to be another great year for cybersecurity M&A. 2015 delivered 112 deals with almost $10 billion in disclosed value, yet YTD2016 has already seen 93 deals completed with $10.6 billion in disclosed value.

Since the summer, we have seen four of the six largest cybersecurity deals completed since 2012: Symantec’s acquisition of Blue Coat Systems from Bain Capital; Avast Software’s acquisition of AVG Technologies; TPG’s acquisition of Intel Security to bring back the McAfee brand, and lastly Symantec’s acquisition of LifeLock.

Symantec has made a bold move with its $7 billion in acquisitions to become the security `gorilla` and making it the number one security platform for consumers. Others will likely follow Symantec’s lead to create broader security offerings as the market consolidates.

Valuations have also ticked up since the summer. While the limited number of disclosed multiples will always overshadow valuation conclusions, we have seen both averages and medians increase past the 10x EV/Revenue in 2H 2016.  The Akamai acquisition of Soha Systems at 30x and Carbon Black’s takeover of Confer at 17x have brought the averages up, but with stable deal numbers and an increase in mega acquisitions and valuations, 2016 is proving to be a hot year for cybersecurity.

Within cybersecurity, the subsectors of network security, general security, identity & access management, and mobile security are consistently seeing the highest volumes. Unsurprisingly, two-thirds of acquired targets are based in the U.S, but of the European targets, roughly half were also acquired by European buyers.

With 38 per cent of cybersecurity companies being picked up by other security companies trying to create a more holistic offering,
there are several others entering this hot space.  Private Equity has clearly started to notice the sector, with 13 deals already this year vs. eight in 2015. BC Partners with Medina Capital acquired three companies/startups in November: Cryptzone; Easy Solutions and Catbird Networks. Other buyers include ABRY Partners, EQT, The Carlyle Group and Monterro Holdings.

Another interesting entrant in the cybersecurity space this summer was the stealth startup, StackPath. Based in Dallas, Texas, Stackpath showed up on the map this July with $180 million in funding, four significant acquisitions completed, and boasting
30.000 customers. It will be interesting to follow StackPath’s growth under the CEO Lance Crosby, who previously founded SoftLayer and which was acquired by IBM for $2 billion.

Following current trends in security M&A as well as the general political and social environment, we expect cybersecurity to remain a hot space throughout 2017.

400 million malware attacks were identified last year alone, according to IDC. A mass migration of IT services to the cloud, coupled with a huge growth of connected devices, has created a perfect environment for security breaches. Cars are becoming increasingly connected, mobile payment applications proliferate and continuously updated mobile applications, wearable tech and IoT all come with security vulnerabilities.

The pureplay cybersecurity players will likely continue to seek acquisitions to retain competitive advantage whilst tech corporates scramble to find security companies to complement their current offerings. The large consultancies with Accenture in the forefront are also likely to keep a keen eye on the space for potential opportunities along with Private Equity houses.

The data used in this report is based on 451 data with focus on all cybersecurity M&A excluding physical security related tech.

Hampleton produces regular annual Cybersecurity reports on the current, in-depth M&A trends. To find out more click here: https://hampletonpartners.com/report/cybersecurity/.

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Hampleton Partners is at the forefront of international mergers and acquisitions and corporate finance advisory for companies with technology at their core. Hampleton’s experienced deal makers have built, bought and sold over 100 fast-growing tech businesses and provide hands-on expertise and unrivalled advice to tech entrepreneurs and companies which are looking to accelerate growth and maximise value.

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