Market overview

The information security market is ripe for consolidation and 2016/17 look set to be the years in which M&A activity really starts to reshape the market. As customers across both public and private sectors start to reject point solution providers in favour of a more comprehensive security approach, and as security increasingly becomes a critically important board-level concern, major vendors are beginning to step up the pace of acquisition activity to meet their demands.

In 2015 there were 197 transactions across the global information security space, up 11% on the previous year, whilst this year activity is already 8% up on H1 2015. A survey1 conducted by 451 Research saw mobility displaced by enterprise security as the number one area of focus for M&A in 2016.

1 451 Research: Tech M&A Outlook 2016

Information Security Clearthought – M&A activity Image

Notable transactions

There have been a number of key transactions such as Symantec’s acquisition of Blue Coat Systems, a threat-blocking service, for €4.17bn from Bain Capital. The combined business is now the largest global enterprise security business by revenue and the transaction saw Symantec paying almost double the price that Bain had paid for Blue Coat only a year earlier.

Other notable transactions have included IBM’s acquisition of incident response business Resilient Systems for a rumoured €89m, Avast Software’s acquisition of fellow antivirus technology provider AVG Technologies for €1.15bn, and Cisco’s acquisition of API-based app security start-up CloudLock for €260m.

Microsoft has also been making strides to improve its security arsenal, investing huge amounts into its organic strategy as well as making acquisitions including Active Directory security firm Aorato, cloud security provider Adallom, and data and file protection business Secure Islands.

Whilst US-based businesses still accounted for the lion’s share of M&A targets, deals such as Avast’s acquisition of Netherlands-based AVG Technologies demonstrate that European-based targets are also starting to be in real demand.

In fact the European market has seen some really interesting M&A activity over the last 12 months including both Sophos and NCC buying into the Netherlands with SurfRight and Fox-IT respectively and Lexsi, a French cybersecurity business specialising in threat intelligence services, being acquired by Orange Cyberdefense, the IT security services subsidiary of Orange Business Services.

Recent European deal highlights

Date Target Country Description Acquirer EV (€m)
2016 AVG Technologies N.V Netherlands Security software for consumers and business users AVAST Software s.r.o. 1054.0
2016 Lexsi SA France Threat intelligence services Orange Business Services n.a
2016 Espion Group Ireland Information technology and security consultancy BSI n.a
2016 RSI Video Technologies S.A. France Intrusion detection systems Honeywell International Inc 89.0
2016 Encription Limited UK Cybersecurity consultancy Blackberry Limited n.a
2015 SurfRight B.V. Netherlands Endpoint threat detection and response Sophos Group plc 21.0
2015 Fox-IT Group B.V. Netherlands Cybersecurity consultancy NCC Group Plc 93.0
2015 Bloxx Limited UK Secure web gateway technology provider Akamai Technologies Inc. 13.3
2015 Trustev Limited Ireland Digital verification technology provider Transunion 28.9
2015 Electranet UK Secure IT network services provider Capita plc 37.0
2015 Secunia ApS Denmark Software vulnerability management Flexera Software LLC n.a
2015 genua GmbH Germany Secure IT network services provider Bundesdruckerei GmbH n.a
2015 Neupart A/S Denmark Information security management solutions KMD A/S n.a
2015 Espion Technology Distribution Ireland Distributor of security, storage, networking and wireless technology DCC plc n.a
2015 nSense ApS Denmark Security and vulnerability assessment services F-Secure Oyj 13.1
2015 Privax Limited UK Desktop and mobile privacy solutions AVG Technologies N.V 48.4
2015 Accumuli plc UK Security and risk management consultancy NCC Group plc 78.6
2015 Optenet S.A. France Security-as-a-service solutions provider Allot Communications Spain S.L.U. 24.6

Private equity

Whilst consolidation activity in the information security environment continues apace, the level of private equity investment in the market in Europe has been relatively low. Although the US market has seen a range of equity interest from TPG (in Intel’s McAfee security business), Sequoia and Greylock (in SkyHigh Networks) and Vista Equity (in Ping Identity) for example, JMI Equity’s recent investment in UK endpoint security player Avecto has been one of the few UK deals.

One of the key reasons for the lack of private equity investment in Europe is the nature of the industry. Highly fragmented, the market is made up of a wide variety of relatively small businesses which, whilst often high growth, have yet to hit the requisite level of profitability to attract the attention of the dominant mid-market equity players.

As the industry begins to mature and as threats continue to increase both in volume and sophistication, it is highly likely that we will begin to see an increasing level of private equity investment.

Hot spots

In an industry developing as quickly as the information security market, consolidation will continue to be an important part of vendors’ strategies as they strive to offer solutions to the latest threats impacting their customers on a day-to-day basis.

Over the next 12-24 months the most sought after targets in the security landscape are likely to come from a small number of categories including cloud security, identity management and security information and analytics, with threat intelligence and mobile security also featuring strongly.

The security information and event management (SIEM) market in particular is attracting a lot of buzz with Gartner having identified it as the fastest growing segment of the security market in 2015.

Recent European private equity transactions

Date Target Country Description Investor EV (€m)
2016 AddSecure AB Sweden High security communications platform ABRY Partners n.a
2016 Digital Shadows UK Cyber situational awareness Trinity Ventures n.a
2016 Netwatch Group Ireland Security equipment and services BDO Development Capital 19.5
2015 SecureLink Group NV Netherlands Cybersecurity, infrastructure and managed services provider Investcorp n.a
2015 Avecto Limited UK Endpoint security software JMI Equity 38.7
2015 CenterTools Software GmbH Germany IT and data security solutions provider Nordwind Capital n.a
2015 Darktrace Limited UK Cyber defence software solutions Summit Partners 16.9
2015 Wick Hill Group Ltd UK Security and storage value-added distributor Rigby Private Equity n.a
2015 RadarServices Smart IT-Security GmbH Germany IT security testing and risk identification INVEST AG n.a