Lately, there have been a number of acquisitions and rumors of impending acquisitions in the cyber security sector. The phenomenon is nothing new, the difference in recent times is that the acquisitions took place in a listed environment. In the past, these companies have in many cases been swallowed up by other major IT companies or venture capital companies even before they are listed on the stock exchange. One example is Swedish Recorded Future, which was purchased by VC firm Insight Partners for around SEK 7.5 billion during the summer.
The development is highly logical. The key to the success of the smaller niche cyber companies is to scale up their operations, that is, increase the volume of recurring license revenue and consulting hours. Of course, this can be done on your own, but integrating into a large company or providing financial muscle through a venture capital company can significantly speed up the process.
Becoming part of a larger product offering, with an already established global customer network, is often what attracts the smaller player. In addition, today you can get good pay for your business. For the larger player, access to new security products and skills that you yourself lack is central. The venture capital company naturally attracts an increase in value on the investment. This is typically done through an exit via a resale to a major player.
Demand for cyber security has probably never been greater and cyber expertise is a scarce resource. This means that the premiums that large companies are willing to pay for less specialized players will skyrocket. As an investor in cyber security companies, we see the opportunity for acquisitions as a spice and a way to take advantage of the explosive growth the industry is facing. The majority of our investments in cyber security are certainly made in larger companies, but we have part of the portfolio in smaller and medium-sized players where acquisitions are a probable value driver.
During the summer, the GDS Fund has seen two of its cyber holdings be acquired. In early August, an acquisition bid was placed on Symantec's security unit from US semiconductor company Broadcom. A deal where Broadcom pays $ 10.7 billion in cash. During the same month, VMware presented a $ 2.1 billion takeover bid for Carbon Black. The Fund's holdings in Carbon Black thus rose almost 40 percent only in August and have almost doubled since the Fund made its first investment in April.
We anticipate that the acquisition trend in cyber security will continue and we are looking for new companies to invest the liquid funds we received after selling the holdings in Symantec and Carbon Black.
