Cybersecurity M&A shows little sign of fatigue
Macroeconomic concerns have slowed many technology investors, but mergers and acquisitions of cybersecurity have shown few signs of slowing down.
Many cybersecurity actions have come under pressure amid broader sales as the 2022 market correction put pressure on stocks. However, a large number of individual cybersecurity firms are still valued well above the market average, and the volumes and values of mergers and acquisitions continue to exceed those of most sectors.
The first quarter recorded a sharp increase of 26.3%. Cybersecurity M&A activity year after year. This growth was not against it an easy 2021 comparison. The only year of the last five that has experienced a decline in activity was 2019, when offers fell by 2.9% compared to 2018.
Several factors have driven the pace of mergers and acquisitions in the sector, including the increase in demand due to the new business dynamics catalyzed by the pandemic period. Many companies have transitioned much of their operations to digital platforms over the past two years. Part of this transition was already part of long-term digital transformation strategies, and some were responding to new and unforeseen scenarios imposed by the pandemic, such as the increase in remote work activity.
“I think the fundamentals and all the drivers are in place,” said 451 Research analyst Garrett Bekker.
The shift to digital has required companies to upgrade and expand their investments in cybersecurity, which in turn has accelerated innovation and the consolidation of cybersecurity. Although much fewer agreements with informed terms were seen in the first quarter of 2022, agreement volumes increased dramatically.
“Cybersecurity has been a hot investment area for a while, but the pandemic really accelerated interest in the industry,” said Merlin Piscitelli, revenue manager for Datasite’s EMEA region. “Cybercriminals tried to take advantage of it, sometimes even paralyzing critical services and infrastructure.”
High-profile cybersecurity violations have further propelled the investment thesis for both business and government. In some cases, government regulators now require certain investments in cybersecurity by critical private sectors.
Another of the engines for cyber mergers and acquisitions is talent acquisition. There are between 2 and 3 million unoccupied cybersecurity sites worldwide, and some acquisitions are motivated primarily by incorporating labor, Bekker and Piscitelli said.
These factors have led to some of the highest valuation multiples on the market.
The 11.6-fold average number of mergers and acquisitions published in the first quarter represents a slight decline from last year’s period, but is about three times the average of 3.3 times the number of mergers and acquisitions. in the technology industry, according to 451 data.
Acquirers include other cybersecurity companies looking to expand, information technology companies looking to protect their non-security products, companies operating outside the technology sector that manage sensitive data, and private financial companies, which have transferred to the sector strongly in recent years.
451 Research is part of S&P Global Market Intelligence.