Covid heightens need for cybersecurity in digital world, says Hampleton Partners' M&A report

Hampleton’s latest Cybersecurity M&A report highlights the importance of cybersecurity vendors as all industries seek protection from cyber-attacks, now that millions more people are working and learning from home using VPN networks and potentially suboptimal computer equipment and inadequate cybersecurity.   

Henrik Jeberg, director, Hampleton Partners, says: “A spike in phishing attacks, Malspams and ransomware attacks has forced companies digitising their processes to double down on IT and cybersecurity improvements. 

“As a result, the IT Security Services segment has seen a rise in M&A activity, as firms continue to outsource their IT and cybersecurity needs. We expect this trend to continue as businesses narrow in on some of their IT vulnerabilities in ways they may not have needed to until now.”

The international tech M&A dealmakers’ report shows that overall deal flow in the cybersecurity space has been relatively consistent since 2015, with a record spike of 242 disclosed deals in 2019. 

Projected volume of 196 deals for 2020 suggests that the coronavirus pandemic has not drastically affected total deal volumes. Valuations in the sector have stayed strong, with EV/S multiples trading at around 5x - rather than around 3x seen in the wider enterprise software M&A market. 

As the largest subsector within the cybersecurity space with 46 per cent of global M&A activity, IT Security Services looks on track to achieve a total of 50 deals in the second half of 2020, up 25 per cent on the first half total. 

Example deals include TA Associates’ portfolio company HelpSystems merger with GlobalSCAPE in a deal worth USD178 million. The deal is set to augment HelpSystems’ data security business, which includes data loss prevention and data classification software. The combined company will focus on providing the most comprehensive collection of trusted security and automation solutions to customers worldwide. 

Also, security integration firm Allied Universal’s two acquisitions in the past 12 months, acquiring Advent Communications Systems and Phoenix Systems & Service (PSSI) both for undisclosed amounts. 

Advent is a low-voltage integrator of IP video, access control, structured cabling and audiovisual systems with revenues exceeding USD42 million and 125 employees.

PSSI provides security systems integration to businesses and has revenues exceeding USD16 million and is known as one of the premiere integrators for access control, digital video, optical turnstiles and intercom systems in the US.

PE firms have funnelled significant investment into cybersecurity – including via their portfolio companies – with a focus on larger, more established targets. The share of financial buyers came in at approximately 36 per cent so far this year, much higher than previous shares which oscillated between 3 per cent and 26 per cent since 2010. This is likely to continue as Covid has forced some strategic buyers to stall their M&A activity, while financial buyers are sitting on large amounts of potential investment and will continue to have access to cheap debt in the near future.