Cybersecurity is hot: answers to your M&A questions

Cybersecurity is one of the market’s most favored industries right now with sky high valuations, lots of M&A activity, and no end in sight to soaring customer demand. To help make sense of it, SSK has written a report that pulls together the most important metrics for understanding cybersecurity M&A in 2021. The report answers many key questions:

Did Covid slow down deal activity?

Not at all. There have been approximately 150 transactions each quarter over the last five quarters. Transaction volume is rising modestly over time and we expect this to accelerate as the economy exits Covid lockdown, and high-profile cybersecurity attacks (Solarwinds, Colonial Pipeline, JBS Foods, Kia Motors) bring increased focus and investment dollars to the industry.

Who are the major investors?

These are broken up into financial investors (private equity and venture capital) and strategic investors (companies in the industry looking to acquire). Key financial investors include Intel, Accel, Bessemer Venture Partners, Kleiner Perkins, NEA, and Sequoia. Key strategic investors include Intel, Cisco, Norton, IBM, McAfee, J2 Global, and Microsoft.

How do they invest?

 PE/VCs do 80% of the deals, and they tend to do smaller deals ($50-100 million). Strategics do only 20% of the deals, and they focus on the higher end ($100-200 million). Where do you go if you have a big deal? IBM leads the pack: average deal size of $312 million is far higher than its peers.

What one factor, above all others, drives the sky-high valuations we are seeing?

Revenue growth. There was a vast difference between high growth and medium growth companies, with high growth firms commanding 34x EV/revenue as against 9x EV/revenue for medium growth firms. The lesson here: right now the market does not care about profitability as long as the business model allows for dramatic revenue scaling.