Published on June 28th, 2022 📆 | 1783 Views ⚑
0Cybersecurity Startup M&A Holds Steady After Record Year
While not on the same breakneck pace of last year, M&A dealmaking involving cybersecurity startups has remained robust in 2022, even with a sputtering economy.
Last year was a record breaker for cybersecurity dealmaking, with 124 VC-backed startups getting bought, according to Crunchbase data. Although it doesnât seem that 2022 will break that recordâwith only 49 announced through nearly half the yearâthis year is still clocking in at a healthy pace, according to those who observe the market.
Dealmaking may not set records this year, but it hasnât fallen off a cliff, either: For comparison, all of 2020 saw 76 cybersecurity startup M&A deals.Â
âWhile weâre a bit behind the record 2021 levels, when you compare this yearâs activity with ⌠all of 2020, it paints a slightly more positive outlook,â said Dino Boukouris, founding director of San Francisco-based financial advisory firm Momentum Cyber.
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âThat being said, the public market and associated cryptocurrency corrections, coupled with the overall economic and geopolitical uncertainty has led to a slight slowdown in M&A to start the year,â he added.
Slight slowdown
Despite that slowdown, this year already has seen some big deals involving VC-backed startups, including:
- TA Associates bought Burlington, Massachusetts-based application security company Veracode for $2.5 billion in May.
- AMD acquired Milpitas, California-based distributed services platform Pensando for $1.9 billion in April.
- SentinelOne bought Fremont, California-based identity detection and response firm Attivo Networks for $616.5 million in March.
That should not come as a shock to most. Cybersecurity has proven resilient in a market where threats and attack surfaces are ever expanding. Although some IT budgets are getting cut, most companies still see cybersecurity as a âmust haveâ due to the growing number of domestic and international attacks and bad actors.
Alberto YĂŠpez, co-founder and managing director at Forgepoint Capitalâwhich specializes in cybersecurity and infrastructure software investments and has seen four exits this year alone in securityâsaid the M&A dealmaking market is still robust and still providing good multiples for investors.
âM&A premiums are not coming down yet because the companies getting bought right now are some of the best,â said YĂŠpez, whose exits include Attivo Networks and, more recently, threat detection and response startup Cysiv getting bought by ForeScout.
YĂŠpez said he is still seeing strong multiplesâaround 20x ARR for good startupsâand thinks it should continue with strategic buyers such as Google, Microsoft and Amazon still swimming in the acquisitions waters.
Google already pulled off a huge deal in cyber when it announced it would pay $5.4 billion to buy publicly traded cyber firm Mandiant.
âI think where you will see prices fall is when private equity starts to enter the frame,â he said.
Needing cash
Prices also could start to fall if fundraising continues to slow and startups are in need of cash.
âThe real question, however, is after valuations in the private markets recalibrate. Will that create a tailwind for M&A for those companies that may be encountering challenges raising capital or possibly facing a âdown roundâ if they were to raise capital?â Boukouris said.
Boukouris said while evaluating strategic alternatives, startups may start eyeing M&A as an alternative if raising money is difficult.
Still, the slowdown in fundraising has not seemed to affect cyber as much as other tech sectors, with the industry minting more than a dozen unicorns already this year.
While some fear the economic uncertainty due to inflation and higher interest ratesâwhich causes the money to complete deals to be more expensiveâcould chill some M&A in the second half of the year, many who invest in cyber do not anticipate a slowdown.
âI donât think interest rates should affect M&A too much,â YĂŠpez said. âI think itâll still be strong in the second half.â
Methodology
Cybersecurity is defined by the industries of network security, cloud security, cybersecurity and identity management, as according to Crunchbase data.
Further reading:
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Illustration: Dom Guzman
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