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| 2 minutes read

Cyber Cravings – PE Continues to Pour into Cybersecurity Firms

Recent cyberattacks at companies like Colonial Pipeline, JBS, and SolarWinds have continued to illustrate how much havoc can be wrought on businesses and consumers through ransomware and other insidious assaults – and how important it is for firms to continuously ensure their digital infrastructure is secured against malicious actors.

“It is top of mind for every single company now,” according to Ian Loring, a longtime executive at Bain Capital who’s now a managing partner at Crosspoint Capital Partners, a new PE firm that focuses on investments in the cybersecurity space. “There’s a massive push in that direction by all corporations.”

With this push comes a massive opportunity for firms like Crosspoint and others interested in the cybersecurity sector.

Crosspoint’s launch and foray into the cybersecurity space comes at a time when the wider PE industry is pursuing investments in cybersecurity like never before. Globally, 2020 brought 116 buyouts in the space and 49 private equity growth investments, both of which were new annual highs, according to PitchBook data. The combined value of those deals reached $19.2 billion, which was 92% higher than any other year on record with the exception of 2016 when investment data was skewed by Silver Lake’s involvement in Dell’s $67B acquisition of EMC. Factoring in Thoma Bravos’ $12.3B buyout of Proofpoint and the $900M acquisition of ExtraHop by Bain Capital and Crosspoint Capital Partners in June—both of which have recently been completed—cybersecurity buyouts have already topped $23 billion combined in 2021 with more deals expected in the last months of the year.

Source: Pitchbook

A simple explanation for the trend is that private equity firms are following the money. As the risk of ransomware attacks and other threats becomes impossible to ignore, companies are necessarily increasing their expenditures on cybersecurity, which leads to huge growth in the businesses of the companies working to help secure their infrastructure.

"I think the main reason for increased interest in cyber is because people are now really seeing a need for it," said Jinny Choi, a private equity analyst at PitchBook. "With significant cyberattacks in the last year, and remote work driving more enterprises and its employees online, the demand for online security is being heightened, with a focus on more specific and sophisticated technology," Choi said.

Choi added that the COVID-19 pandemic has likely pulled technology trends for private equity investors forward by an average of five to 10 years. Market research firm Technavio predicts that the cybersecurity market will grow at an annual rate of around 13-15% between 2021 and 2025.

"It's impossible to say with confidence next year will be higher, but five years from now it certainly will be, as the industry matures and restructures to build subsectors, and as PE firms take notice of the attractive opportunities being created," according to Choi, reflecting the same trends that Crosspoint and other deal teams are taking notice of - and pursuing vigorously.

"It's impossible to say with confidence next year will be higher, but five years from now it certainly will be, as the industry matures and restructures to build subsectors, and as PE firms take notice of the attractive opportunities being created"

Tags

private equity, cybersecurity, covid-19, technology

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