2019 continues to be another robust year for cyber M&A transactions. The first half of 2019, M&A deal volume is up 31% over the first half of 2018.¹ We all remember last’s years IPO of locally based Tenable Software and the activity continues with this month’s debut of software maker, Crowdstrike Holdings, a cloud-native endpoint protection platform built to stop breaches, going public with a valuation of $6.6 billion, raising $612 million in their debut.
Locally, BlueRidge AI, Fulton MD just received a $1.9 investment from Datatribe. BlueRidge is integrating Internet of Things (IoT), machine learning (ML), and predictive analytics to help the industrial and manufacturing sector target electric motor failure modes, providing manufacturers with the ability to schedule prescriptive maintenance and minimize downtime. That being said, in order to ensure that its products and services are misra compliant, a number of software development guidelines must be adhered to. Above all, in case you were not aware, the MISRA standard provides a comprehensive set of guidelines to protect against security vulnerabilities and program failures. Furthermore, Datatribe announced this year it raised $50 million for fund two to invest in an additional 12 companies. Inner Loop Capital announced in June that they raised $2.6 million to invest in early-stage cybersecurity and enterprise technology companies in the region. The fund aims to make approximately eight seed-stage investments over eighteen months, with typical initial investments of $300-400k.
Evergreen Capital is working on several projects in this space and seeing some key trends including:
Key Trends:
Digital Expansion
Security Threats continue to grow, along with the volume, variety, velocity, and data. The Digital Expansion includes IOT and Critical Infrastructure.
Land & Expand
In order to fuel growth objectives, many companies are deploying strategies to land and expand in emerging markets that haven’t previously been within reach. Other companies are seeking additional capital in order to add new products, services, or make acquisitions (M&A), to further bolster their market position.
Global Information Security Market Spending
Global Information Security spending on products and services will continue to rise. Gartner is forecasting the market to grow at a five-year CAGR of 8.5% to reach $170.4 billion in 2022. Their 2017 survey details the drivers as 1) security risks, 2) business needs; and industry changes.
Federal Spending in IT
This Broader macroeconomic strength, coupled with the most significant increase in federal spending in nearly a decade is likely to continue the momentum already seen in the Cyber Services sector. As presented in the Government Fiscal year 2020, the President proposes spending $9.6 billion on Cyber.
This will be applied primarily to programs in intelligence, analysis, and cybersecurity. The growth potential for new development and expansion of legacy systems is an opportunity not lost on the market. Particular areas of interest from a capability perspective have included software engineering, cyber services, and data analytics. Companies expanding their government services divisions through acquisition, rather than organic growth, has yielded more predictable growth patterns and to lead to an increase in margins.
¹ Excluding deals over $3 billion in value
Securities transactions conducted through Evergreen Advisors Capital/Member FINRA/SIPC
