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CyberScope – Q1 2020 Market Review

By Jay Nathwani 22 Apr 2020

Welcome to the Q1 2020 edition of the CyberScope – Results International’s market update for the global cybersecurity sector.

Highlights of the quarter:

  • In our last edition, three months ago, we predicted “more of the same” for the cyber security industry! In some ways of course, this is true:
    • Phishing attacks are at an all-time high, and high-profile breaches continue apace.
    • Mass remote working adds another layer of complexity and attack vector to be secured.
    • Resilience will grow in importance for Boards leading to even more focus on cyber security.
  • Covid-19 will have at least a short-term negative impact on the sector:
    • Our Global Security index dropped 12% during Q1; although some players, like Crowdstrike, Cloudflare, Okta and ZScaler bucked the trend, and the whole index has risen c. 5% since the end of the quarter.
    • Valuations have declined markedly in the public markets: a 22% drop to 6.4x revenue for the 75th percentile (which we use a proxy of next-gen vendors) but still don’t look low by historical standards driven by the structural strength of the industry in the long-term.
    • Deal activity continues but at a much slower pace: Q1 generated 35 M&A transactions up slightly on the average for H2 2019; but in the early weeks of April was understandably muted – the buyout of Avira by Investcorp for $180m, being a notable exception.

Outlook:

  • We expect the sector to bounce back strongly and more quickly than other segments of the technology industry, and the broader global economy:
    • That’s what happened after the financial crisis of 2008
    • The fundamentals of the sector and its end-market use cases were strong before Covid-19
    • Changes to working practices, supply chains, and the focus on resilience at Board level will drive additional investments in the short, medium and long-term

Despite current market turbulence, 2020 will remain a good year to contemplate fundraisings, exits or acquisitions in the cyber security space.  Please do get in touch to discuss.

 

Read the report

 

Jay Nathwani

Associate

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