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Race to lock down cyber security vendors intensifies as more technologies at risk

by Brian Sims

The cyber security sector’s largest-ever deal, specifically Broadcom’s landmark acquisition of Symantec for $10.7 billion, set the tone for an uptick in transaction volume and continuously strong valuations. That’s according to Hampleton Partners’ latest analysis of global cyber security mergers and acquisitions (M&A) activity.

The company’s Cyber Security M&A report highlights the popularity of cyber security vendors as all industries seek protection from cyber attacks. Cyber security transaction volume rose by 15% in the second half of 2019 compared to that of 2017. Valuations have also remained healthy, with EV/S multiples consistently trading around 5x for the past four years, which is significantly above the 3x valuations seen in the wider enterprise software space.

Hampleton Partners has cited three key trends impacting the race to secure cyber security vendors: an exponential increase in the number of devices connected to enterprise Internet of Things (IoT) networks (providing potential entry points for cyber attackers), growing volumes of personal data that needs to be secured and mounting regulatory and financial penalties for cyber insecurity.

Axel Brill, director of Hampleton Partners, said: “The number of cyber attacks, as well as their complexity, is growing rapidly. Cyber security vendors will have to move quickly to keep ahead of malware and hackers. Cyber attacks are some of the most dangerous threats for businesses across all sectors and industries, demanding management time and increased investment in technologies like Artificial Intelligence (AI) to protect against vulnerabilities. There’s no doubt that AI-focused cyber security vendors will be the most sought-after future M&A targets in this sector.”

Palo Alto Networks takes top spot

The Top Three acquirers in cyber security over the past 30 months were Palo Alto Networks (seven deals), J2 Global (six deals) and Thoma Bravo (six deals).

Palo Alto Networks is the most active acquirer on an annual basis for the second year in a row (as measured by number of acquisitions completed in the last 30 months). After completing three transactions for a combined $563 million last year, the business spent nearly that amount on acquiring security automation and orchestration software provider Demisto for a total of $560 million in February. In May, the company also acquired enterprise container and cloud security software provider Twistlock for $410 million.

Overall, the company nearly doubled its M&A spending year-on-year, spending almost $1.1 billion so far this year on a total of four cyber security transactions.

In addition to being the most prolific acquirer, Palo Alto Networks has also paid some of the highest valuations disclosed in the space, paying 46.7x and 27.3x EV/S for Demisto and Twistlock respectively.

Palo Alto Networks also paid 15x EV/S to acquire Zingbox, the AI-based IoT device management and threat system that analyses and detects threats by identifying behavioural anomalies.

*Download the full Hampleton Partners Cyber Security M&A Report by accessing this link: https://www.hampletonpartners.com/reports/cybersecurity-report/

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