Why cyber firms are prime targets for mergers and acquisitions
Oct 29, 2015, 7:01am EDT
Reporter- Baltimore Business Journal
Cybersecurity startups that want to attract an investor or buyer will have to show more than high growth potential.
Industry companies that come at security from a new perspective are prime targets for mergers or acquisitions by older security companies looking to advance their technology, or by investment firms that back high potential companies. But while investment in cyber is still on the rise, those with the cash are looking at investments more judiciously, said Maria Lewis Kussmaul, a co-founder and partner at the investment bank AGC Partners. Now, investors want to see profitability and cash flow, on top of steady growth.
Kussmal, an investment banker who leads the firm’s cyber business, spoke on Wednesday about mergers and acquisitions in cybersecurity at the CyberMaryland Conference taking place at the Baltimore Convention Center on Oct. 28 and Oct. 29.
Here are some takeaways from her talk:
· Mergers and acquisitions are big in cyber because of a high demand for cyber services and a shift in leadership within the industry. The old approach to cybersecurity — an impenetrable perimeter — is outdated. Newer tactics focus on intel of potential threats, detection of attacks and rapid response. That means more well established companies, like Symantec, Cisco Systems and Microsoft Corp., must find a way to compete with newer companies. Their best bet to gain these capabilities is to acquire a smaller cyber firm that specializes in these services.
· The cyber niches seeing the most attention include user behavior monitoring and analytics, next generation endpoint protection and threat intelligence. These are capabilities that the big players in cyber must have if they want to stay relevant.
· Larger companies looking to get an edge on competition aren’t the only buyers. Large accounting and auditing firms, like KPMG and Ernst & Young have also shown an interest in acquiring cybersecurity companies as strong business investments.
After Kussmal’s talk, I ran into Ellen Hemmerly, who runs University of Maryland, Baltimore County’s business incubator, bwtech@UMBC Research & Technology Park, which leans heavily toward cyber.
Hemmerly said Kussmal’s comments confirmed what she already knew: Cyber is the place to be.
Companies based at UMBC are much smaller than the companies being acquired by the likes of Cisco or Microsoft, but knowing what investors are buyers value in smaller firms is helpful for the incubator’s fledgling companies, she said.
