Increased M&As drives consolidation in technology security space
Earlier in this series, we took a look at expectations from Symantec’s (SYMC) soon-to-be-announced fiscal 1Q17 earnings, as well as how Blue Coat Systems provided a boost to its stock.
Eric McAlpine, founder of Momentum Partners, stated in Techcrunch, “The Symantec-BlueCoat transaction is the second largest M&A transaction in history for enterprise security. The security market chessboard is evolving right before us.” Momentum Partners is an M&A advisory firm.
In June 2016, Cisco Systems (CSCO) acquired CloudLock, a cloud-based security firm for $293 million, to strengthen its position in security space. Avast Software acquired AVG Technologies (AVG) for $1.3 billion, which was a 33% premium on AVG’s closing price on July 6, 2016. Currently, Intel (INTC) is on the lookout to sell its security business, McAfee. Intel acquired McAfee for $7.7 billion in 2010.
In the current scenario, customers want security solutions that apart from being comprehensive, are less complicated and easy to implement. To meet this demand by customers, companies will strategically seek acquisitions that not only augment their existing product portfolios but also provide cross-selling opportunities. This explains why Symantec chose Blue Coat Systems to complement its Enterprise Security segment.
Factor driving consolidation in security space
The increasing data breaches are providing growth avenues for cybersecurity companies. SMAC (social, mobile, analytics, and cloud) revolution, the BYOD (bring-your-own-device) concept, and an increase in the mobile workforce are changing the cybersecurity landscape. As a result, significant funds are expected to flow toward the cybersecurity space in the future.
Cybersecurity Ventures, a research firm, expects that the spending on cybersecurity solutions will increase to $170 billion in 2020 from $75.4 billion in 2015. Increasing competition, as well as lowered valuations of cybersecurity companies like FireEye (FEYE), makes them an ideal target for potential acquisition.
Moreover, the IT sector is expected to witness a 7.2% decline in earnings. Of all the companies in this sector, Apple (AAPL) is estimated to be the largest contributor to the IT sector’s expected fall in earnings. This fall in the tech sector’s 2Q16 earnings might fuel additional M&A.