Media & Tech Tuesday - The accelerating consolidation of the cyber security market

Last week, FireEye Inc, the rapidly-growing NY-listed provider of network security products to global corporates, announced the $1bn acquisition of Mandiant. The deal is 90% equity but the headline multiple of revenues (over 6x +) is reflective of the importance of this transaction to the acquirer.

This is the latest in a growing wave of high-multiple acquisitions in the network security space as a large and expanding number of corporate acquirers, both ‘pure play’ security products or services providers and new market entrants crossing over from aligned sectors, battle to secure a footprint in this fast-growing and potentially enormous market.

Last month Livingstone sold ContextIS, the UK’s leading independent provider of incident response and security consulting services and research to Babcock International PLC. Babcock paid £32m to secure this important asset and its outstanding capability and reputation, fighting off stiff competition from across the software, media, professional services and defence & security markets.

The strong pricing is reflective of the significant potential of this market and the extreme scarcity of high quality ‘find it’ rapid incident response services, relative to the growing number and scale of large software and professional services businesses targeting this space.

While Mandiant’s own ‘find it’ business will become an excellent sales channel for FireEye there may be a risk that Mandiant’s loss of independence weakens its standing in a market where reputation and independence are important to both customers and government partners. The ContextIS/Babcock deal, by contrast, will allow the UK company to maintain its independence as it accelerates its global roll-out.

Both deals follow a busy year of transactions in cyber security, including Cisco’s headline-grabbing $2.7bn acquisition of Sourcefire and Deloitte’s purchase of Vigilant, a US threat response services provider. Cassidian also consolidated their position in France with the bolt-on purchase of Arkoon Network Security in April.

Livingstone expects transaction volumes to continue to grow and pricing to remain very strong as there is a growing number of hungry acquirers; the threat environment continues to expand in quantum and sophistication; business practices such as Bring Your Own Device (“BYOD”) and use of distributed servers (the “cloud”) proliferate and the rapidly emerging ‘Internet of Everything’ makes End Point Security and protection of data an increasingly sophisticated, demanding and mandated business requirement.

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