Cybersecurity Market Poised For More Deals As PE Firms Circle

After a dearth of investment activity in 2017, private equity firms have been increasing their sights on the cybersecurity market, making investments in startups and established companies that are protecting every aspect of the corporate network.

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With hacks happening at an increasing rate, and with the size and reputational hit as a result of the attacks getting worse, companies are willing to spend money to protect their systems and data. That hasn’t been lost on the nation’s PE firms, which have been picking up the pace of deals in recent months.

But it hasn’t always been easy going even if there is a lot of interest in cybersecurity. Earlier this year Kristjan Kornmayer, director of M&A Advisory Services at Chertoff Group told Axios while every type of PE firm has been going after the market, the bigger players have a tougher time finding good targets. The startups are getting acquired before they are large enough to garner the attention of the big PE players. To get around that, Axios reported PE firms are lowering the minimum investment size. At the same time, others are going after the big, established players in the market, buying them outright.

Take PE firm Thoma Bravo for one example. In recent weeks rumors have been flying that it is in early-stage talks with McAfee’s owners TPG Capital and Intel about acquiring it. Intel paid $7.7 billion for McAfee in 2011 and sold a 51% stake to TPG for $4.2 billion in 2017. It’s not clear if anything will come of the talks, but it does mesh with another recent cybersecurity deal from the veteran PE firm. In that case, it spent close to $1 billion in cash in November to acquire Veracode, the cybersecurity software as a service company. In October, it announced it was acquiring Imperva, the cybersecurity company that secures enterprise data and application software in a $2.1 billion deal. Rumors have also swirled that Thoma Bravo is in talks about buying Symantec, although nothing has come of that yet.

Thoma Bravo isn’t alone in making security investments this year. In February BlackRock and Pamplona Capital Management announced they were jointly acquiring PhishMe, a Leesburg, Virginia cybersecurity company in a $400 million deal. PhishMe defends companies against phishing attacks. According to PitchBook, as of 2016, the top three PE firms investing in cybersecurity include Thoma Bravo, Francisco Partners, and Vista Equity Partners. As the new year kicks off, it's not clear which PE firm will emerge as the leader in cybersecurity investments but one thing is clear, investors should embrace for more deal activity in 2019.