Gary Guseinov: Reasons Why M&A Is the Engine Driving Cyber Security

After a decade or so, most other IT sectors reach some technology maturity and status. But the cybersecurity sector is unique in that the technology can never mature because adversaries are constantly evolving. Incumbent security vendors must continue to respond, and M&A acquisition is one of the ways they stay on the leading edge of the innovation curve. VCs and PEs that see this exit potential continue to fuel new startups.

According to Gary Guseinov's work, both the sell-side and the buy-side of the M&A market. Here are the structural trends that drive M&A activity in cybersecurity.

·        More than a decade of VC and PE investments has created a bounty of security startups.

      Walk the aisles at the RSA Conference, and you'll see them. Many of these funded startups are essentially built for acquisition in that they are more focused on developing "features" than becoming fully baked companies. It means the funding glut and proliferation are driving industry consolidation via M&A.

·        Publicly traded security companies need to show predictable and recurring revenue.

      These companies use M & M&A to acquire existing customer bases and future revenue streams, which creates investor confidence and stable stock prices for them. It means that high-margin software-as-a-service companies that can prove future revenue growth are desirable M & M&A targets.

·        Cybersecurity affects every sector. 

      Just like energy costs creep into every aspect of our economy, security is now a problem that nearly every company must deal with. We see cybersecurity M&A deals coming from corporations in adjacent sectors like telco, aerospace, and energy that are acquiring cybersecurity technology to manage their operations. It means Security startups can look for M&A exit opportunities among non-software companies that need to build or buy in-house security expertise.

·       Incumbent enterprise security companies feel Wall Street pressure to fortify their positions in a fragmented market. 

      The security market is still highly fragmented. Incumbents are acquiring startups that offer orchestration and automation technologies to help them build out existing security platforms. They are also looking to acquire startups focused on securing emerging areas such as cloud services, IoT, and containers. It means Companies that innovate security for emerging areas and companies that automate disparate security functions will continue to get acquired.

Conclusion

According to Gary Guseinov, structural drivers in the cybersecurity sector ensure that new startups will continue to get funded. And incumbent players will continue to acquire new security technologies and talent via M & M&A. constantly evolving threats guarantee a need for niche technologies. This market dynamic is a win for both the sell-side and buy-side. Therefore, M&A is a driver of innovation and creator of value in the cybersecurity sector. Consistent programmatic M&A strategy is a proven formula for growth and success.