Deal activity in the cybersecurity sector is being driven by a combination of rising cyber threats and more people working from home. Earlier in 2020, Francisco Partners and Vector Capital-backed cybersecurity company WatchGuard Technologies acquired network security provider Panda Security. Mergers & Acquisitions spoke with WatchGuard CEO Prakash Panjwani about the Panda deal and M&A trends in the sector.
How does the acquisition of Panda fit into WatchGuard’s M&A strategy?
Acquiring Panda and its advanced endpoint protection solutions is allowing WatchGuard to create the industry’s most powerful cybersecurity platform that extends protection from the network to the user. By bringing Panda and WatchGuard together, we will enable our current and future customers and partners to consolidate their fundamental security services through a single provider, backed by the simplicity and high quality of service that is core to both companies’ DNA.
Our customers and MSP partners need access to enterprise-grade security built for the unique needs and requirements of the midmarket. WatchGuard has built an MSP-focused security platform that simplifies every aspect of security delivery, and further establishes the company the industry’s de facto security solution for the midmarket. The acquisition and integration of Panda’s portfolio into WatchGuard Cloud represents a significant milestone on our path toward this goal, and will result in both immediate and long-term benefits for our customers and partners such as simplified security, the ability to adapt to rapidly changing network topologies, and streamlined purchasing.
How was WatchGuard able to close the deal during the pandemic?
The key to successfully managing and closing this deal during the Covid-19 pandemic was ultimately the strength of our acquisition thesis. The rationale underpinning the entire transaction was that midmarket businesses and the channel partners that support them need a holistic security platform, from a single provider, that delivers protection from the network to the endpoint. As more employees began to work from home as a result of the pandemic, businesses have been forced to find ways to extend security beyond the traditional network perimeter to protect users working from their homes. This meant that the endpoint security capabilities Panda provides were and would continue to be in high demand. We carefully and honestly revisited this thesis throughout the process and it was clear every time that despite the pandemic (and in some ways because of it) and its many associated economic concerns, our strategy remained rock solid. As this crisis grew more daunting and other M&A deals failed along the way, this thesis gave us the confidence to push forward and close the acquisition.
What was the biggest challenge of the deal?
The biggest challenge we faced in acquiring Panda Security was the fact that just as we were completing due diligence and preparing to sign our intent to purchase, global impact of Covid-19 began ramping up. This meant that all the in-person planning and integration meetings we had scheduled would be impossible and we’d have to execute the entire process remotely. This was undoubtedly a major challenge, but it also created a unique bonding experience as we managed the process while working from home. Not only did we plan for the integration, but we also met each other’s families and pets. That personal element allowed us to bond much more quickly and on a deeper level. Soon-to-be colleagues and teams were collaborating on common business goals, but with a greater degree of trust, empathy and commitment due to those strong relationships.
Is WatchGuard looking for more acquisitions? In what markets and subsectors?
The Panda acquisition represents the latest stage in our evolution as a company, adding vital endpoint protection capabilities our customers and partners need. We’ll continue expanding our platform to become the go-to security solution for midmarket organizations and the partners that support them. While I can’t speak to any further planned or potential WatchGuard M&A activity at the moment, we are always looking to increase the depth and breadth of our product portfolio through a strategic combination of organic development, partnerships and M&A. We will continue investing in security products and services that ensure we’re able to continue providing the most comprehensive and simplified security platform on the market.
What advice do you have for other companies looking to close deals under current challenges?
You need a smart thesis, robust intercompany relationships and a strong but adaptable integration plan to successfully close any deal; and these elements become even more critical during a pandemic. A solid thesis will help you accurately identify indicators that it is time to walk away from a deal, or it will help confirm that your strategy will continue to remain effective throughout difficult or unexpected challenges. The most critical element of any successful acquisition, developing strong inter-company relationships, will ensure that you have the foundational bonds in place to make it through major obstacles – even a global health crisis. And, you must be adaptable through the integration process as remote collaboration challenges and other hurdles will be more prevalent during this time.
What is your outlook for M&A in the sector?
The security market will continue to experience significant consolidation throughout 2020 and beyond. This has been and will continue to be driven by customer needs. As the volume and sophistication of security threats continue to grow, vendors will answer with innovative new solutions. At the same time, the security expertise and resources required to deploy and manage those solutions will continue to be scarce. Businesses – and midmarket organizations in particular – that are unable to keep up with the evolving threat landscape on their own will rely on vendors and trusted channel partners to manage security for them. So, consolidation will take place across every aspect of the security market. Vendors will consolidate so they can build better, highly integrated solutions faster, MSPs will consolidate their technology stack to reduce complexity and cost for clients, thus leading to a stronger security ecosystem and better protection for end customers.