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Cybersecurity Preview

Homeworking triggers surge for security software

Market overview

While the global market downturn caused by the coronavirus pandemic continues to impact many sectors, security software has seen a boom of activity as working from home practices have made it even more imperative to protect organisations from cybersecurity threats.

Well before COVID-19, data protection issues were a key driver for increased activity in the space, in a region particularly sensitive to divulging personal information, a sector banker said. GDPR accelerated the importance of cybersecurity pre-pandemic, leading end-to-end encryption technology like Boxcryptor from developer Secomba to prominence.

Then the virus hit, making up-to-date IT security protocols more urgent.

The European Cyber Security Agency (ENISA) reports a 600% increase in the volume of phishing emails during the pandemic, and statistics from Cybersecurity Ventures estimate that cybercrime will cost the global economy around USD 6trn per year by 2021.

Germany alone has fallen prey to 21 substantial attacks between May 2006 – June 2020, ranking fourth worldwide behind the US, the UK and India, according to data from think tank Center for Strategic and International Studies.

On a broader level, the pandemic has accelerated the DACH region’s digitalisation trend, in countries that have historically been slow to adapt to digital technology trends, several bankers said. Yet, many corporations are still slow to adapt and need to improve digital security infrastructure, so the window of opportunity for M&A in the segment remains very much open.

Recent deals in the region have particularly been driven by venture capital firms from Germany or neighbouring countries like the Netherlands investing in start-ups, according to Mergermarket data. 

The DACH mid-market, on the other hand, is already much consolidated, largely by dominating IT services trade players such as Bechtle [ETR:BC8], Datagroup [ETR:D6H] and Cancom [ETR:COK], a sector banker said. Wanting to increase market share and expand products, these acquisitive strategic players target specific niches such as IT security licensing, consultation, and services, the sector banker added. Bechtle, which saw revenue increase by 3.9% to EUR 1.3bn from April to June, is interested in large cap acquisitions in segments such as cybersecurity, as reported.

The issue is that in Europe there are not many large consolidators specific to cybersecurity, a second sector banker said. But there is a growing interest from private equity groups and that will continue, this banker added, encouraged by deals such as Investcorp’s acquisition of German anti-virus security firm Avira for USD 180m (EUR 152m) in April. Because targets in this segment tend to generate EUR 50m revenue or less, they can be too small for large players and also too small to consolidate the market alone, which is where private equity players have an opportunity, this banker added.

Open Systems, the EQT-backed network and security developer, expects to be acquisitive for the duration of the pandemic, as focus on dispersed workforces pushes sector growth, as reported. Furthermore, companies such as VC-backed IDNow see the sub-segment for identity verification technologies as “very fragmented”, providing ample opportunities for consolidation, its CEO said.

Small-cap targets such as those developing technologies like data encryption services will likely also see more and more M&A activity, one sector banker said. Switzerland has produced a number of attractive targets, such as internet scanning and cybersecurity services provider BinaryEdge, which was bought by Coalition, a Californian cyber insurance firm, earlier this year. Last year Goldman Sachs invested in another Swiss cyber protection firm, Acronis, in a USD 147m (EUR 124m) financing round that valued the business at over USD 1bn (EUR 850m), as reported.

The fact that smaller targets are achieving such valuations underlines the pull of the segment, one sector banker said. For example, in its recent pre-Series A round, Germany-based cybersecurity training company SoSafe raised a substantial seven figure from Acton Capital, as it goes on to plan a Series A for 2021. These small and mid-cap enterprises are finding international attention, as with data protection company Hornetsecurity, which last month saw Providence Strategic Growth, an affiliate of Providence Equity Partners, and Norwegian growth equity investor Verdane, invest an undisclosed amount.

Buoyed by strong business during 2020, cybersecurity firms have wind in their sails as they pitch to investors in upcoming financing rounds. Austrian IT security firm RadarServices may only be at Series C stage raising EUR 35m, but it is already eyeing 2022 for a possible EUR 200m-EUR 300m listing, as reported. As private equity investors start to take notice, the competition will only get hotter: watch this space.

Recent deals

Announcement dateTargetTarget descriptionBidder SellerDeal Value (EURm)
28-Jul-20Hornetsecurity GmbH (Undisclosed Stake)
Provider of cloud security solutionsProvidence Equity Partners LLC; and Verdane Capital Advisors AS

SoSafe GmbH (Undisclosed Stake)
Cybersecurity training company,
Acton Capital Partners GmbH

07-Jul-20*xorlab AG (Undisclosed Stake)
Cybersecurity provider of protection against Zero-Day exploits and malicious websites Spicehaus Partners AG

18-Jun-20*CYRISO Cyber Risk Solutions GmbH
Cybersecurity companyPerseus Technologies GmbH
SEC Consult Deutschland Unternehmensberatung GmbH

23-Apr-20*Nimbusec GmbH (74.5% Stake)
Cybersecurity start-upKSV1870 Holding AG

26-Mar-20*DataCo GmbH (Undisclosed Stake)
Privacy and compliance Software-as-a-Service companyOne Peak Partners

04-Mar-20ESC - Enterprise Security Center GmbH (Undisclosed Majority Stake)
Company providing managed services and IT security  solutions and systemsSwiss IT Security AG

27-Feb-20*Enginsight GmbH (Undisclosed Stake)
Provider of integrated solution for IT monitoring and cybersecurityTalanx International AG; bm-t Beteiligungsmanagement Thueringen GmbH; Brandenburg Ventures GmbH; seed & speed GmbH; Smart Infrastructure Ventures GmbH; Paysmark VAerwaltungs- und Beteiligungsgesellschaft mbH

06-Feb-20*Perseus Technologies GmbH
Provider of cybersecurity and GDPR compliance solutions to SMEsHDI Global SE
Talanx AG

22-Jan-20BinaryEdge AG
Provider of internet scanning and cybersecurity services Coalition Inc

19-Nov-19*Crashtest Security GmbH
Company providing application security testing softwareSoleria Capital GmbH; GeMue Beteiligungs GmbH; Marco Marchesi (Private Investor)

08-Nov-19it.sec GmbH
Provider of cybersecurity consulting servicesSwiss IT Security AG
Holger Heimann (Private Investor)

28-Oct-19*IDnow GmbH (Undisclosed Stake)
Online platform that uses artificial intelligence to provide ID verification servicesCorsair Capital LLC

18-Sep-19Acronis International GmbH (Undisclosed Stake)
Company engaged in providing cyber protection and hybrid cloud storage servicesGoldman Sachs & Co. LLC

16-Sep-19*VMRay GmbH
Software company providing automated malware analysis and detection solutionseCAPITAL entrepreneurial Partners AG; Digitalplus GmbH

07-Sep-19Intellec AG; Zapp it gmbh
IT Security company; Switzerland-based IT services company Swiss IT Security AG

Companies to follow

SoSafe (05/08/20)

German cybersecurity-training company SoSafe is in early-stage talks with venture capital firms and strategic players to raise Series A funds, aiming to raise a double-digit-million euro round by mid-2021, Managing Director Niklas Hellemann said. It welcomes international investors able to support its expansion in Europe and beyond. The firm generates revenues in the single-digit-million euros.

DataGuard (30/07/20)

DataGuard, a German privacy software company, could look opportunistically at small acquisitions as a means of complementing its organic growth. The Munich-based company could consider acquiring small teams of developers or firms with early-stage tech products to build up its presence in the DACH region as well as potentially enter other European countries, CEO and co-founder Thomas Regier said.

CyberDirekt (24/07/20)

CyberDirekt, a German cyber security insurance company, plans to undergo a Series A funding round to fuel its growth as the market for cyber insurance in Europe expands. The Berlin-based company expects to open the round in the next six months in return for an undisclosed minority stake, CEO Hanno Pingsmann said. The company would target at least several million euros in funding and will likely seek to onboard financial investors such as VCs as well as family offices with a long-term view on growing the European cyber insurance market.

IDnow (20/07/20)

IDnow, a German ID verification software company, is looking to make technology acquisitions to build up its service offerings as the industry sees a boost from the coronavirus pandemic, CEO Andreas Bodczek said. IDnow is interested in technology companies that complement its own tech stack in automated identity verification or focus on areas adjacent to ID verification. Targets could be as small as technology firms with 10 to 30 employees, but IDnow could also look to acquire larger firms with more than 60 employees as it seeks to build up “critical mass” in the industry.

pep Security (01/07/20)

Cybersecurity provider pEp Security, headquartered in Switzerland and Luxembourg, is in talks to raise EUR 5m to EUR 7m and aims to close the round by the end of this year, CEO Leon Schumacher said. It is considering different types of investors, he said, adding that to date it has worked well with high-net-worth individuals. A minority stake will be available to investors. To date the firm has raised between EUR 15m and EUR 20m in funding, approximately 80% of which in equity.

Passbase (16/06/20)

German security-tech start-up Passbase anticipates raising a Series A funding round within the next year. Passbase would welcome approaches from VCs based in Europe or the US, CEO Mathias Klenk said. While it is still evaluating how much it would look to raise from investors, it is looking to sell a minority stake and will likely target an amount in the “lower” double-digit million-dollar range. The company is on track to exceed USD 1m in annual recurring revenue in 2020.

Security & Safety Things (09/06/20)

Security & Safety Things, which operates an open Internet-of-Things (IoT) platform, could consider taking on investors to accelerate its growth. Security & Safety Things is wholly owned by German technology giant Bosch, so it is well funded, but would like to expand its shareholder base to support future expansion, VP of Strategy & Venture Architecture Felicitas Geiss said. At present, it is working on growing its business by adding applications and expanding geographically.

Secucloud (23/04/20)

German cyber-security solutions provider Secucloud could raise EUR 5m to EUR 10m in 4Q20, and a decision on whether to raise funds will be taken in the third quarter of this year, CEO Dennis Monner said. Secucloud is advised in its growth strategy by investment bank Stifel, and it will target venture capital firms, small private equity companies as well as strategic players. The 45-person company has raised approximately EUR 14m since being founded in 2013.

Open Systems (17/04/20)

Open Systems, the EQT-backed network and security developer, expects to be acquisitive even amid the pandemic, as focus on dispersed workforces could push growth in its emerging sector, CEO Jeff Brown said. The secure access service edge (SASE) company – co-headquartered in Zurich and Redwood City, California – will look for technology add-ons, possibly those with a similar customer base or with a focus on networking functions. Open Systems could do larger deals with the help of majority stake owner EQT Mid Market Europe. In May, it acquired Michigan-based Born in the Cloud, a specialist in cybersecurity threat detection, prevention, and response.

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