Private Equity Investing in Cybersecurity

Experts from Pitchbook report that private equity's romance with cybersecurity is still going strong.

Throughout 2022, private equity companies (along with their portfolio companies) have had a hand in more than 162 cybersecurity deals globally valued at $34.9 billion. If deals continue at this rate, the total by the end of the year is sure to surpass 2021's $36.4 billion across 308 transactions.

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Companies with their eyes on private equity include Thoma Bravo, who recently added Ping Identity to their long list of acquisitions for $2.8 billion. Bravo also acquired cybersecurity identity firm SailPoint earlier this year in a $6.9 billion transaction.

Another titan in the realm of cybersecurity acquisitions is Option3, a New York-based firm focused primarily on cybersecurity. Private equity is looking to acquire products that offer a full suite of services, as users dislike fragmented interfaces, says Manish Thakur, a Managing Partner at Option 3. He adds that in speaking to clients of cybersecurity companies, he found that consumers want fewer companies with more integrated, consolidated services because the marketplace is flush with too many companies with inadequate products. That's why Option3 pivoted from venture funding early-stage startups to acquiring late-stage, middle-market companies to implement building strategies. The company has recalibrated its investment strategy to acclimate to this new shift in the market towards comprehensive interfaces and is currently raising $250 million for a buyout fund dedicated to this new strategy.

Option3 isn't alone, says Brendan Burke, a Senior Analyst at Pitchbook. He adds that the record-breaking deal value has been driven by investors who are taking companies private, snatching up mature companies at discounted prices as tech company valuations continue to fall.

"Private equity has finally been able to get attractive prices on high-growth market leaders that were priced too high before this year," Burke told Pitchbook. "They've been able to move toward consolidated product offerings for their platform companies."