PE Firms All In as Cyber Attacks Threaten Private Industry
Cybersecurity, as a line item in corporate budgets, can get comfortable. Chances are, its belt will not be tightened in 2016. The 2015 cyber attacks on corporate giants Target, Anthem, and Sony Pictures (to name a few) sured up its position—and ensured that most CEOs would skip over data protection during their annual search to cut fat. In fact, according to research firm Gartner, global spending on cybersecurity is on the rise and expected to reach $108B in 2019, an increase of almost $31B from 2015.
Few situations wield the power of a carefully orchestrated cyber attack on an unsuspecting target. The bigger the company, the larger the attack surface, and often, the greater the potential for damage. Data breaches unseat CEOs, affright prospective clients, and soil reputations. Therefore, it is no surprise that despite market unease, private equity investment in cybersecurity companies has remained steadfast. The low supply, high demand relationship is attractive to private equity, and there are a plethora of companies looking to fortify their global presence through capital infusion. Bain Capital’s 2015 announcement regarding the intent to purchase Blue Coat Systems for $2.4B will be one to watch, and is expected to be finalized in 2016.
As long as hacks make headlines, the supplydemand relationship for cybersecurity is expected to remain appealing—and signs point to the continuation of this trend through 2016. Alfred Zaccagnino, CEO and Founder of the Samarian Group of Companies, has closely followed the course of private equity investments in cybersecurity companies. “Cybersecurity will remain on our radar as long as the conditions remain favorable. All signs indicate it is a probability that cybersecurity will continue to have a presence in PE portfolios.” states Zaccagnino.
An outlook this good begs the question: what is the downside of private equity investment in cybersecurity companies? Keeping up with hackers—and hactivists—requires an evolving strategy (that’s code for lots of capital). On the operations side, keeping revenue up with escalating costs can pose a challenge for companies. Additionally, because of the low supply, high demand relationship, valuations of cybersecurity companies can be inflated.