Uppköpsfest i cyberrymden

Takeover party in cyberspace

Recently, there have been a number of acquisitions and rumors of impending acquisitions in the cybersecurity sector. The phenomenon is nothing new, the difference in recent times is that the takeovers took place in a listed environment. In the past, these companies have in many cases been swallowed up by other larger IT companies or venture capital companies even before they were listed on the stock exchange. An example is Swedish Recorded Future, which was bought by the VC firm Insight Partners for approximately SEK 7.5 billion during the summer.

The development is highly logical. The key to success for the smaller niche cyber companies is to scale up their operations, i.e. increase the volume of recurring license income and consulting hours. You can, of course, do this on your own, but being integrated into a large company or adding financial muscle through a venture capital company can speed up the process considerably.

Becoming part of a larger product offering, with an already developed global customer network, is often what attracts the smaller player. In addition, today you can get paid well for your business. For the larger player, access to new security products and skills that they themselves lack are central. For the venture capital company, an increase in the value of the investment is of course attractive. This is typically done through an exit via a resale to a larger player.

The demand for cyber security has probably never been greater and cyber competence is a scarce resource. This means that the premiums that large companies are willing to pay for less specialized players skyrocket. As investors in cybersecurity companies, we see the opportunity for acquisitions as a spice and a way to take part in the explosive growth the industry is facing. The majority of our investments in cyber security are certainly in larger companies, but we have part of the portfolio in smaller and medium-sized players where acquisitions are a likely value driver.

Over the summer, the Global Security Fund has seen two of its cyber holdings get acquired. At the beginning of August, a takeover bid was made for Symantec's security unit from the American semiconductor company Broadcom. A deal in which Broadcom pays $10.7 billion in cash. In the same month, VMware unveiled a $2.1 billion takeover bid for Carbon Black. The fund's holdings in Carbon Black thus rose almost 40 percent in August alone and have largely doubled since the fund made its first investment in April.

We foresee that the acquisition trend in cyber security will continue and are looking for new companies to invest the liquid funds we received after selling the holdings in Symantec and Carbon Black.


Photo by NASA Wed Unsplash