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CyberScope – Q1 2018 Market Review

05 Apr 2018

Welcome to the Q1 2018 edition of the Cyberscope – Results International’s regular market update for the global cybersecurity space.

Cybersecurity stocks have seen strong growth over the past quarter, building on the continuous growth in the underlying equities market over the same period. A recurring theme over the past few quarters, data security has once again monopolised headlines, in particular the rigorous scrutiny Facebook has come under recently, which in Europe has compounded with the effects of the new GDPR regulations, as companies strive to comply before the roll-out deadline in May. Results International’s Global Cybersecurity Index was up 18.5% over the last 12 months, just behind the Nasdaq, and in Q1 the Global Cybersecurity Index grew by 6.8%, pulling away from the Nasdaq which grew 0.8% over the same period.

Of particular interest in the quarter was combating phishing, from the perspective of both strategic and financial investors. The recently privatised Barracuda Networks acquired Phishline, and Pamplona Capital in consort with BlackRock took over PhishMe, which rebranded to Cofense subsequent to the transaction. With Cofense recording a 65% increase in phishing attacks in 2017, the importance in mitigating the human element in any firm’s cyber perimeter has been brought sharply into focus.

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Another theme has been the ongoing consolidation in the privileged account management space, as the leaders in the space converge towards providing a unified end-to-end PAM platform, thereby mitigating much of the risk inherent in cyberattacks. Analysts have viewed CyberArk’s acquisition of Vaultive in a positive light, whereas the private equity-backed Bomgar’s acquisition of Lieberman ensures it doesn’t fall behind. One Identity acquired the Hungary-founded Balabit, and since the end of the quarter Francisco Partners (One Identity’s backers) have also launched a successful bid for Bomgar, a potential catalyst for the formation of a serious challenger to CyberArk’s leading position in the PAM space.

The protracted bullish spell in technology stocks has brought with it another sizeable flotation with Zscaler, next-generation cloud security, raising $192m at a multiple in excess of 10x revenue. Despite the rich valuation the stock ended its first day up 106%, showcasing how the focus of investors in transformational businesses with large, easily accessible addressable markets is shifting away from conventional sales multiples towards quantifying growth potential. This has been borne out in the initiating coverage, with analysts split between buy or hold recommendations, legitimising the steep valuation.

Transaction volumes have reflected the strength in the equity markets, with a record quarter of 53 announced deals. Traditional pure-play security acquirers have continued to pursue inorganic growth opportunities with Palo Alto Networks, CyberArk and FireEye from our Global Cybersecurity Index adding key components to their respective offerings. Furthermore, broader blue-chip enterprise software vendors have sustained their spending in the security markets, with Amazon, Cisco, VMWare and Oracle all adding further security capability to their stacks.

In the private markets, investors have continued to deploy significant equity in the sector. Notably, companies are increasingly relying on primary capital further along in their lifecycles, continuing to drive growth as they scale. This quarter saw both Vectra (network security) and Anomali (threat management) bring in c.$40m in Series D rounds, bringing their total funds raised to $122m and $96m respectively.

Cybersecurity, from growth equity raises to strategic exits, continues to demand premium interest, making now an excellent time to be contemplating a fundraising, exit or growth through acquisition in the cyber security space – if you are, please do get in touch.

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