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
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
|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|
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.
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
|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|