Mandiant And The Cybersecurity Goldrush

Here's why security companies will be acquired for big money in 2014.

2014 was celebrated in the cybersecurity world with a massive, billon-dollar acquisition. Mandiant, a security firm best known for conducting forensics on alleged Chinese military attacks against the New York Times, was acquired by security software provider FireEye. If you happen to run a security firm or have equity in one, congratulations: The next year is going to be all about acquiring cybersecurity firms, and it's largely the result of one Edward Snowden.

Snowden's revelations of omnipresent American government data vacuuming of the entire digital world, and not just of foreign militant or government targets, accelerated larger trends in the security sphere. Large and midsized companies realized that for cybersecurity, they'd have to go it alone: Closer ties between tech firms and the government could hurt foreign sales due to non-U.S. consumers fearing U.S.-based companies are in cahoots with American intelligence agencies. There were even post-Snowden fears by foreign-owned companies working on American soil that the NSA might be spying on them as well. These weren't just idle fears; Reuters recently offered good evidence that security firm RSA let the NSA put a backdoor in one of their software tools as part of a secret $10 million contract. In 2013 and 2014, it's deeply out of fashion to discuss increased collaboration between the government and cybersecurity firms.

For said security firms, this means a gold rush of mergers and acquisitions. The combination of a higher volume of digital attacks, more clients being aware of the need to protect themselves, and government paranoia means security companies--many of which are on the small side--are in a good place to be purchased for large sums of money. Mandiant, many of whose employees reportedly come from the intelligence community, was acquired for more than $1 billion in cash and stock. They're only the latest in a string of cybersecurity acquisitions over the past year. Websense was acquired this past spring, IBM acquired financial security firm Trusteer last summer, and Cisco acquired SourceFire in July for a reported $2.7 billion dollars.

Acquisitions in the billions of dollars are relatively commonplace in the security world because of the organizations that use their services: Fortune 500 companies are willing to dig deep in their pockets to keep away white collar criminals and other digital intruders--just think of how Target's public image suffered as a result of their data breach. The trend of acquisitions is likely to continue; Gartner Research analyst Lawrence Orans told me in a telephone conversation that “there are a lot of small companies in various segments of the security market, defending and protecting against advanced persistent threats (APTs) ... and you'll see a lot more consolidation there. You'll see the larger players acquiring smaller players.”

He added that smaller and mid-sized companies will be using outside cybersecurity services as well. “Smaller to mid-size companies will have to rely on third-party services, because defending against APTs and targeted attacks is a complicated area that they don't have time or resources to bring their people up to speed. Large companies will develop expertise and invest internally in security.” Either way, this means security firms are in a prosperous position right now.

[Gold Locks: Africa Studio via Shutterstock]

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