An age of cybersecurity M&A is approaching. Here are the companies ripe for acquisition, according to a new report.
- VMware acquiring the cybersecurity company Carbon Black this year for $2.1 billion is just one example of how cybersecurtity consolidation is heating up.
- A new Forrester reports that there will be more M&A activity in cloud security in 2020.
- These are six cybersecurity startups that the report named as possible targets for acquisition.
- Some say that they're not looking for an exit, but that they're at least hearing would-be buyers out. At least one of these startups, SentinelOne, says that it's aiming for an IPO within the next three years.
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With major data breaches like the one experienced by Capital One fresh on everybody's mind, cybersecurity has become a hotter topic than ever.
Against that backdrop, cloud security is going to be the next major challenge in the cloud computing industry, a new Forrester report says, setting the stage for 2020.
With cloud security so front-and-center, tech giants will be looking to buy or build their way into the market, the report says. For example, in October, VMware acquired cybersecurity company Carbon Black for $2.1 billion to lock down software running in the cloud against threats.
Across the industry, Cisco also acquired Tetration, Check Point acquired Dome9, and Palo Alto Networks acquired Evident.io, in deals of varying value. Andras Cser, vice president and principal analyst at Forrester, predicts that Broadcom, Symantec, and Trend Micro are likely to keep buying these kinds of startups in the near future.
"It is highly likely that the wave of acquisitions continues," Cser told Business Insider.
There are two areas that these tech giants will invest in, Forrester predicts: cloud workload security (CWS), or securing applications and data in the cloud, and endpoint detection and response (EDR), or technology that continually monitors and responds to cyber threats.
In either case, Forrester laid out six startups that it sees as prime acquisition fodder heading into the new year.
These are six cybersecurity startups that the report named as possible targets for acquisition:
Threat Stack
Valuation: $172 million
Total raised to date: $72.37 million
Year founded: 2012
HQ: Boston, MA
Threat Stack monitors cloud infrastructure for threats and intrusions, while also helping customers make sure that they're meeting regulatory requirements.
In response to being placed on Forrester's list of possible acquisition targets, Threat Stack CEO Brian Ahern says that the company is now growing quickly in terms of customers, employees, and revenue.
"As evidenced by Threat Stack's 100% revenue growth in 2018 and the increasing momentum we have seen in 2019, Threat Stack's steadfast focus on product development is driving the pace of innovation in the cloud security and compliance market," Ahern said in a statement.
"Threat Stack is a company built to last with enduring value in the cybersecurity community. We are continuing to invest heavily in the business to meet growing demand, and deliver industry-leading value to our customers."
CloudPassage
Valuation: $215.9 million
Total raised to date: $90.39 million
Year founded: 2010
HQ: San Francisco, CA
CloudPassage CEO and co-founder Carson Sweet says he's been working in the cybersecurity market for about 30 years now, and it's an area that's only seeing more investment nowadays. He says the Capital One hack underscored the importance of cybersecurity for the market.
His company CloudPassage helps customers reduce vulnerabilities and respond to any attacks on cloud applications. Right now, many big companies are moving to the cloud, which has also led to more investment in cloud security.
"The M&A environment is obviously very hot," Sweet told Business Insider. "A series of acquisitions that have punctuated the fact that large security providers are paying a lot of attention."
Sweet says he's seen interest in CloudPassage from other companies, and he's open to listening, but he's focused on growing the company for now.
"We don't have a lack of inbound interest from strategics," Sweet said. "We're focused on growing the business. If the right opportunity comes along, we're listening and we'll consider it like any good company would. Every company out there, we're all getting calls. We're all having conversations and it's a hot space."
What sets CloudPassage apart from other cybersecurity companies is the experience it has, Sweet says. CloudPassage started by focusing on large enterprise customers and expanding its business from there. He also says its history with larger customers allows it to compete against the newer entrants.
"That's worked out for us really well," Sweet said. "We actually intentionally focus on cloud infrastructure. This is one of several reasons the strategics realize it's an important space."
Sweet says that in the coming year, there will be a big push to move into medium-sized companies.
"We have a very remarkable base of fortune 1000 companies that we protect," Sweet said. "We protect massive cloud deployments there...It takes time to get that right. The customers recognize that. That's why we have a great customer base."
Armor
Valuation: $300 million
Total raised to date: $147.84 million
Year founded: 2009
HQ: Richardson, TX
The $300 million cybersecurity startup Armor provides cloud security, and also helps companies comply with security requirements.
This is important, says Armor CEO Mark Woodward, because before, security mostly focused on antivirus software and firewalls. However, the Capital One breach showed how important it is to actively protect data that's in the cloud, he says.
"I thought [the Forrester report] was spot on," Woodward told Business Insider. "We saw this coming for a long time. We thought the right thing to do was to protect the data."
Woodward says right now, his business is growing significantly, but Armor currently is not looking to get acquired. However, he says, "anything can happen, especially in a rapidly growing marketplace."
"I just think about building a successful company and a growing company, whatever the outcome is," Woodward said. "The board is going to make that decision, not me."
Woodward expects the trend of the cybersecurity market consolidation to continue.
"The cybersecurity has been a very inquisitive and consolidating market for a long time," Woodward said. "As security evolves and as threat evolves, larger players tend to see it as an important space."
SentinelOne
Valuation: $600 million
Total raised to date: $229.52 million
Year founded: 2013
HQ: Mountain View, CA
SentinelOne, which helps companies defend against cybersecurity attacks, announced in June that it raised $120 million in a series D round.
With the funding, SentinelOne COO Nick Warner said that it plans on launching a security product for connected devices, as well as doubling down on sales, marketing, and hiring. The goal is to grow the company from about 415 employees now to 600 employees by early next year, he said.
In addition, SentinelOne already has a big brand in North America and Europe, but it's going to be expanding in the Asia Pacific market next year, Warner says.
Warner says that what makes SentinelOne stand out from competitors like CrowdStrike, Carbon Black, Symantec, TrendMicro, or Sophos is its machine learning capabilities, which can help protect against even unknown threats, as well as the fact that it was built for the cloud.
"We have a much more powerful and flexible prevention program than any other players in the space," Warner said.
Warner says that although SentinelOne was mentioned in the Forrester report, "we're definitely not for sale." Rather, he says, SentinelOne is on the IPO path in the next 18 to 36 months.
"We're flattered that we're mentioned," Warner said. "We're a very attractive company in terms of top line market, but we're definitely not in the market to sell, and we're really on the IPO path. That was validated by the valuation and amount and investor set."
Cybereason
Valuation: $1 billion
Total raised to date: $390 million
Year founded: 2012
HQ: Boston, MA
Cybrereason CEO and co-founder Lior Div says that cloud computing is reshaping the business technology landscape, and will only continue to be a "driving force" in the years to come.
"The largest public cloud services will expand their market share and Cybereason looks forward to forging new alliances and partnerships as our business rapidly expands across the world," Div said in a statement on the company's inclusion in the Forrester report as a possible acquisition target.
His company Cybereason is an endpoint security company, meaning that it secures a company's network and the devices connected to it, like phones, laptops, and desktop computers. Its technology prevents, detects, and responds to threats and attacks, and the company also compiles reports about hacks.
It's currently valued at $1 billion, and backed by investors like SoftBank.
"We help all security teams prevent more attacks, sooner, in ways that enable understanding and taking decisive action faster," Div said. "Cybereason is the world's most reliable and effective endpoint prevention and detection solution because of our technology, our people and our partners."
Illumio
Valuation: $1.67 billion
Total raised to date: $332.5 million
Year founded: 2013
HQ: Sunnyvale, CA
The hot cybersecurity startup Illumio helps prevent the spread of breaches inside data center and cloud environments. Only six months after its public launch, it was worth $1 billion.
In February, Illumio raised $65 million in a Series E round, bringing its valuation to $1.67 billion. On top of that, it hired a new CFO, making the option of going public a real possibility. Still, Illumio CEO and founder Andrew Rubin declined to comment on the company's exit strategy.
"I'm proud of what we have accomplished and the customers that we have made successful over the years, including the likes of Salesforce, Morgan Stanley and Oracle NetSuite, but there is much more to be done," Rubin said in a statement. "While we cannot predict the future, any CEO focused on an exit strategy does not have his/her eye on the ball."
Rubin says that the company's mission is to allow every organization to "realize a future without high-profile breaches."
"Over the last six years, our team has been heads down building and growing a business that is both innovative and agile by running toward challenges and bringing our best every day," Rubin said.
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