London’s cybersecurity sub-sector is a growing target for potential merger and acquisition activity after this week’s US$12bn acquisition of Proofpoint by private equity, while a growing pipeline of IPOs is also waiting in the wings.
Prior to the announcement of the Proofpoint deal by Thoma Bravo, there had already been around US$20bn of M&A activity, including Okta Inc buying Auth0 for US$6.5bn and McAfee Enterprise snapping up STG for US$4bn.
This has already roughly equalled last year’s activity when there were six $1bn-plus deals.
It comes amid the growing importance of cybersecurity as more employees work from home as a result of the coronavirus pandemic, with a 20% increase in cybersecurity threats during 2020 according to TrendMicro.
London’s cybersecurity defenders include FTSE 250-listed trio Avast PLC (LON:AVST), NCC PLC (LON:NCC) and Spirent Communications PLC (LON:SPT), to AIM-listed players Brandshield Systems PLC (LON:BRSD), Corero Network Security PLC (LON:CNS), Crossword Cybersecurity PLC (LON:CCS), and Osirium Technologies PLC (LON:OSI).
Larger cyber outfits are also looking to float or merge in SPAC deals, according to press reports, ranging from Tanium (valued at around £7bn last October), Netskope (£2.2bn as of February last year), Ilumio (£1.3bn in early 2019), Pindrop (£700mln in late 2018), Exabeam (£620mln in mid-2019) and IronNet (£670m as of March 2021).
The acquisition of Proofpoint marks a rapid rise in cybersecurity M&A, noted broker Peel Hunt.
“While consolidation is not unusual in this industry, we believe this more active M&A relates to the increasing trend towards customers consolidating their cybersecurity procurement, triggered by the Covid inflection for WFH and Online,” analysts said.
“We expect a rising appetite for cybersecurity IPOs – a number of multi-billion-dollar private companies are waiting in the wings.”
With Proofpoint being bought for around 8.8 times its 2022 forecast revenue, Peel Hunt said “growth is valued more than margins for high-growth cybersecurity”.
The analysts also noted that venture capital (VC) companies remain hungry for deals as well as eyeing IPOs for some of the many assets they have gobbled up in recent years, with Bessemer (with 54 cybersecurity assets), Accel (53), Insight (48), Sequoia (43), NEA (42), and Lightspeed (40).