2015 was an extraordinary year for cybersecurity as M&A transactions, IPOs and venture financings reached new heights while governments and corporations fell victim to damaging and costly data breaches. The enormous magnitude of the information security problem leaves end-users desperate for security solutions thereby driving robust demand for products and services. When a cyber security product or services company gains acceptance and sales traction in the market place, astronomical revenue growth rates and a high valuation in both dollars and as a multiple of revenues can result. For example, in 2015 new investment firms such as Google Capital entered the sector, existing investors such as Allegis Capital increased fund sizes, and record sized financing rounds were completed for companies such as Tenable Network Security. International finance activity remained brisk with, for example, the London Stock Exchange’s listing of the largest IPO for a cyber security firm in the UK (see page 6) and Microsoft’s acquisition of Israeli-based Adallom for $320 million.
Overall, the cybersecurity market reached approximately $75bn globally in 2015, an increase of 4.7% YoY. Key segments included the US financial services market at an estimated $9.5bn (2015), and the US Federal Government which has spent $100bn over the past decade and has budgeted $14bn more in cybersecurity expenditures for 2016.
- Red hot cyber security transaction activity globally with more
than 80 M&A transactions, 4 IPOs and 377+ growth capital financings in 2015
- M&A valuations healthy with average valuation multiple for disclosed transactions of 3.0x revenue
- Robust investor demand for IPOs with average valuations of
6.7x revenue and 36.1x EBITDA
- Liquidity from M&A and IPO investor exits enticed venture
capitalists to pour more than $2.3bn into early stage financings
- Post-IPO shares of publicly traded cybersecurity firms outperforming the broader market over the last 5 years
- Plentiful growth opportunities going forward as the global cybersecurity market expected to grow to $170bn by 2020 representing a CAGR of 9.8%