Is the changing Cybersecurity landscape an opportunity for PE investors?, Shagun Jain, Megha Kal…>
Alix Partners – Shagun Jain, Megha Kalsi, Satchi Mishra
The cybersecurity sector is expected to grow at a compound annual growth rate (CAGR) of 10% over the next three years, driven by the increasing volume and complexity of cyber threats.
As security technologies continue to emerge, there is a race among established companies to acquire specialized expertise and remain competitive in addressing the evolving threat landscape.
This technological convergence has led to a high demand for mergers and acquisitions (M&A) as a strategic avenue for innovation in cybersecurity.
The blog post emphasizes that while private investments in cybersecurity, including private equity and venture capital, experienced a drop in the second half of 2022, they have started to rise again in the past six months.
Overall, deal volume has remained relatively constant at around 100 to 125 deals per quarter, driven by higher public M&A activity.
Within the private investment category, private equity-backed deals saw a more significant decline in deal volume.
However, the blog post suggests that this trend is likely temporary, as the cybersecurity sector continues to be attractive for investment due to several key drivers:
1.
Growing importance of cloud security: The widespread adoption of cloud technology has increased the demand for cloud-native security solutions.
This has resulted in a surge in M&A activity as cybersecurity companies aim to acquire or merge with firms specializing in cloud security, identity, and access management.
2.
Importance of emerging technology: The adoption of emerging technologies like AI-driven threat detection and response, data security, zero trust, operational technology/internet of things (OT/IoT), and identity access management (IAM) has driven increased M&A activity.
Established companies are acquiring startups to stay innovative and competitive in the market.
3.
New market entry: Companies are expanding their presence in new markets to broaden their customer base and address global cybersecurity concerns.
This has led to acquisitions of cybersecurity companies in different regions.
4.
Government initiatives: Increased government spending on cybersecurity to protect critical infrastructure has created a demand for cybersecurity solutions.
Companies that secure government contracts, such as SailPoint, Tenable, Rapid7, and CyberArk, are benefiting from this trend.
The blog post identifies several opportunity areas for future deals in the cybersecurity sector.
These include cloud security solutions, AI-powered security solutions, IoT security solutions, cybersecurity training and awareness solutions, and cybersecurity consulting services.
The post concludes by suggesting that it is a golden juncture for private equity firms to invest in the cybersecurity sector.
Investments made now have the potential to yield substantial returns in the future, given the critical role of cybersecurity in our technology-driven world.
The recent surge in deal activity is seen as just the beginning of a continuing trend.
Link: https://insights.alixpartners.com/post/102iqtb/is-the-changing-cybersecurity-landscape-an-opportunity-for-pe-investors