Cybersecurity Market Review
2elXGia
2elXGia
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Q3 2016: <strong>Market</strong> Update And Observations<br />
The Emergence of Private Equity Firms Have Significantly Increased Strategic Activity In 3Q16.<br />
Valuations<br />
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Valuations increased across the board during Q3, driven by our High Growth <strong>Cybersecurity</strong> comps<br />
which were +21%. Our Low Growth <strong>Cybersecurity</strong> comps were +10%, relative to the NASDAQ<br />
which was +10%, the S&P 500 which was +3% and the HACK index which was +17%<br />
Valuations have rerated over the last 12 months, but were buoyed by a strong Q3. Median forward<br />
multiples are down 34% compared to down 50% at the end of Q2. Notables include Rapid7,<br />
FireEye and Fortinet whose forward multiples are down 61%, 55% and 34%, respectively<br />
Top 5 Movers in Q3<br />
91% 68%<br />
40%<br />
30% 28%<br />
Exits: M&A &<br />
IPO Activity<br />
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<strong>Cybersecurity</strong> M&A activity through 3Q16 reached record levels of $14.3B; total announced M&A<br />
volume in 3Q16 totaled $7.6B and 31 Deals<br />
There were several notable M&A transactions led by PE buyers: Vista Equity acquired Infoblox for<br />
$1.3B, TPG acquired McAfee for $4.2B and Thoma Bravo acquired Imprivata for $488M<br />
Carbon Black confidentially filed for its IPO with the SEC. Optiv, Tanium, Forescout, Veracode and<br />
Tenable Network Security are all eyeing an IPO exit over the next 12 – 18 months<br />
Investment<br />
Activity<br />
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Q3 saw an increase in large fundraising rounds – there were 5 deals of $50M+, led by StackPath’s<br />
$180M investment from Abry Partners, and 10 deals between $25M-$50M<br />
3Q16 saw funding volume total $1.3B across 80 deals, a record number of deals and the second<br />
largest funding volume since 2010; fundraising volume YTD has already exceeded 2015<br />
60% of deals were early stage (Seed – Series A) with a median amount raised of $4.5M; the<br />
remainder consisted of late stage (Series B+) with a median amount raised of $20.6M<br />
StackPath<br />
Industry<br />
Observations<br />
§ Private Equity ‘s <strong>Cybersecurity</strong>: 7 deals in the sector in 2016 representing a total of $8.0B in<br />
enterprise value have included Private Equity on one side or the other, led by TPG’s acquisition of<br />
McAfee from Intel<br />
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Industrial / IoT security is emerging as one of the next big destinations for investment – we are<br />
tracking 16 companies that raised $110M in 2016, with 60% of funds ($70M) raised in 3Q16 alone<br />
Security teams are stretched thin and struggling with vender fatigue in many cases. SOC automation<br />
and orchestration tools are a welcomed promise if they can deliver on the hype<br />
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