Consulting firm M&A market intelligence on cyber security

Cyber security cropped

Cyber security never seems to be far from the news these days. Whether it’s the attacks on Sony or President Obama’s rally for increased cyber security legislation (just before accounts belonging to the US Central Command were targeted), the ubiquity with which we hear about this topic demonstrates how important it is to our lives.

As consumers, we’re becoming increasingly reliant on technologies such as smartphones and social media. Organizations are also becoming more dependent on their data for operational and strategic management. With datacentres split across continents and storage of data increasing in the cloud, personal and company information is also becoming increasingly exposed to cyber threats.

In response to these dangers, businesses of all sizes need help improving and strengthening IT security systems, and cyber security consulting services are increasingly in demand.

Innovation in this space is critical, as threats often evolve more rapidly in the cyber sector than the pace of solutions. This can in turn drive acquisition activity in cyber, as larger firms look to acquire skills and intellectual property (IP) rather than refreshing or building these in-house, which can often take longer.

In line with this, in 2013-2014 we have seen deal volumes of firms being acquired in cyber security consulting growing at over 20% per year, well ahead of the global IT consulting sector which saw growth of just under 10%.

Specific drivers of this M&A demand include the following:

  • Innovation driven by small-scale firms offering niche cyber security services and products. As they gain market share they become attractive targets to larger cumbersome corporates
  • As businesses become ever more connected, often through less secure devices such as mobile phones, the amount of damage cyber threats can cause increases. Threats include potential loss of IP, reputation and customers
  • Regulations and standards relating to individual privacy and data privacy are increasing as the public becomes more aware of data scandals
  • Global adoption of poorly secured cloud-based IT services has made cyber attacks more attractive. As companies move critical business data from more secure in-house databases to cloud-based networks, businesses must try and defend themselves against attacks

We’ve analyzed transaction data from 2006 to understand who have been the key buyers of cyber security consultancies, as this trend has evolved:

  • IT and research consulting firms have been prolific buyers over this period, with IBM, All Covered Inc. and CGI Group among the top
  • Technology firms, including IT software, hardware, data processing, internet service firms and IT distributors have also been consolidating this market. Frequent buyers of cyber consultancies in this group include CA Technologies and Dell.
  • Private equity firms are typically frequent buyers in growing market sectors such as cyber. Within cyber consultancies, we have seen Providence Equity Partners, Apax Partners and Thomas H. Lee Partners making several acquisitions in this space.
  • Beyond these key buyer groups, we also have seen telecom firms making cyber consulting acquisitions as Voice over Internet Protocol (VoIP) has driven the industry towards digital technology. Industrial and manufacturing firms have also been acquiring cyber consultancies, as front-end sales and back-end supply chain processes are becoming increasingly dependent on data and online systems.

Geographically, acquisition activity in the cyber security consulting market has been gaining significant momentum since 2011 in both the US and UK. The UK cyber security consulting sector is currently growing faster than in the US, but the US sector is larger and more mature. Within cyber, Identity and Access Management (IAM), data loss prevention and recovery, device management, and encryption are key areas of focus.

The importance of cyber security skills and IP to tech-related and non-tech sectors is likely to continue going forward, and we expect this acquisition trend, particularly for consultancies with cyber skills, to continue in 2015.

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