Cyber security firms vulnerable to M&A attacks

August 4, 2016

The cyber security industry is in the midst of a deals boom as private equity buyers hunt for cash-generating companies and smaller start-ups get snapped up for their technology or in-demand security engineers.

As security companies, in Las Vegas this week for the annual Black Hat and Def Con conferences, expose the latest examples of software vulnerability, investors are pushing for consolidation in the fragmented industry.

The total number of exits in the cyber security industry — the vast majority of which are deals — rose by a third from 2014 to 2015, according to PrivCo, the private company research firm. In the first quarter of 2016, notable deals in the industry increased by 50 per cent from eight to 12, the firm said.

Jack Andrews, an analyst at D.A. Davidson, said there had been a two-pronged boom in dealmaking in the sector, with private equity chasing software deals and smaller private cyber security companies consolidating as valuations fall.

The end result would be good for corporations trying to protect against cyber threats, he said.

“Given the increasing complexity of the threat, there has been an explosion of all these companies selling products. It is hard for customers to figure out which is real and which are ‘me too’ products,” he said. “[The M&A] will be good for the management of security in general.”

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