A rise in ransomware and malignant cyber activity has resulted in an unprecedented increase in M&A activity in cybersecurity products and services. Over 100 M&A transactions took place in the first quarter alone this year.
What’s driving this volume, and who are today’s buyers?
“Buyers in the cybersecurity space tend to take one of 3 forms: strategic buyers, PE-backed strategic buyers and PE buyers,” said Eric Bell, managing director with Progress Partners. “For the first half of 2022, we’ve tracked a total of 226 cybersecurity M&A transactions. By deal count, 124 (55 percent) were strategic buyers, 83 (37 percent) were PE-backed strategic buyers, and 19 (8 percent) were LBOs (i.e. PE buyers).”
The industry is seeing deals vary in size from smaller sub-$5 million deals up to Broadcom’s $69.2 billion purchase of VMWare. Other notable deals in the space this year include Thoma Bravo’s $6.9 billion acquisition of Sailpoint, KKR’s $4 billion purchase of Barracuda Networks and Vista Equity’s $17.1 billion deal with Citrix.
The private equity firms investing in cybersecurity are big players like Thoma Bravo, TA Associates, Vista Equity, The Carlyle Group and KKR who are sitting on “massive war chests of dry powder” Bell says. These firms are attracted to the cybersecurity industry in part due to how dynamic the industry is.
“Technology is constantly evolving as malicious actors and nation state-sponsored organizations attempt to exploit vulnerabilities in IT systems and critical infrastructure,” Bell says. “As a result, new market opportunities arise and buyers are willing to pay up to acquire capabilities that accelerate their product roadmap, give them access to new markets or help them capitalize on emerging trends.”
The cybersecurity landscape is fragmented, and Progress Partners notes six areas they expect to see continued interest from dealmakers:
- Threat Intelligence & Attack Management
- Identity & Access Management
- Extended Detection and Response
- Cloud Security
- Operational Technology Security and Internet of Things Security
Cybersecurity transactions show no signs of slowing down. Bell expects “to see continued activity from the major tech companies, especially those fighting for dominance in the cloud, most notably Alphabet, Amazon, Microsoft, and IBM.”