Cybersecurity deal value grows by 155.2% in Q4 2021, says SS&C report
The global economy is expanding due to digitization, and cybersecurity has become a priority for many corporations. As our digital capabilities expand further with new technologies like machine learning (ML), artificial intelligence (AI), etc., there will likely be an increased investment in cyber by organizations in the defense strategies to ensure growth can take place without being jeopardized through vulnerabilities.
According to the latest report by SS&C Intralinks, cybersecurity mergers and acquisitions (M&A) activity boomed in 2021 and set a record deal with over USD 50 billion deal value which is the highest since 2016.
In the first quarter of 2022, the deal value represented 34.6% year-over-year (YoY) growth from the first quarter of 2021 and 155.2% quarter-over-quarter (QoQ) growth from the fourth quarter of 2021.
The median deal size in the space has seen a lot of change in the past two decades. After staying at a constant figure between 2016 and 2018, the median deal size increased from USD 30 million in 2018 to USD 50 million in 2021. Most cybersecurity deals have been strategic rather than buyouts. With private equity firms having a lot of cash and the changing cybersecurity space, there may be more buyouts in the future. After the onset of the pandemic, the proportion of M&A that is categorized as buyout grew to 29.5 percent in 2020 which is the highest since 2012.
In 2021, venture-backed cybersecurity exits increased to USD 27.4 billion in aggregate value across 133 deals. Record-high company valuations led to larger exits, with the number of deals between USD 100 million to USD 500 million doubling. The majority of exit value in the past three years was driven by public listings. However, this proportion is likely to shrink with the IPO market cooling off. The number of venture-backed cybersecurity acquisitions increased by 57.9 percent between 2020 and 2021. If this trend continues, it may lead to acquisitions shaping aggregate exit value in the future years.
North America has been the hub of cybersecurity deal activity due to several factors like the size of its economies and the concentrated presence of MANGA companies that operate both domestically and abroad. The deal value in North America grew 108.9 percent between 2020 and 2021 and the deal count rose 38.5 percent. In March 2022, the U.S. Securities and Exchange Commission proposed new rules according to which public companies will have to disclose cybersecurity incidents and policies. This indicates how cybersecurity concerns have become crucial for investors and regulators.
Europe has been consistently on the second position in global cybersecurity M&A activity. Its deal value remained constant between 2020 and 2021, while the deal count rose by 75.9 percent. By 2027, the European Union will invest EUR 1.6 billion into cybersecurity capabilities and deployment across its member states in addition to several other initiatives for strengthening cybersecurity.
M&A activity in Asia has been historically variable, with occasional large deals happening in China, South Korea, and Japan. In 2021, Asia was the third largest region by deal value with USD 2.9 billion generated across 13 deals. This region will continue to be a big part of the industry because of its many technology companies, large populations, and high rates of internet use.
The digital transformation boom since the pandemic has increased cybersecurity concerns across industries and regions. After a slight decline in 2020, the growth of cybersecurity M&A value was significant over the past five years. As organizations seek to address their vulnerabilities, cybersecurity deal making is expected to grow continually.
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