Cybersecurity Acquisitions, Mergers Heat Up After Pandemic-Prompted Pause

Cybersecurity mergers and acquisitions (M&A) rebounded after grinding to a halt during most of 2020 due to the COVID-19 pandemic.

That’s according to the latest Corporate Finance Associates (CFA) quarterly report on M&A in the technology services industry. CFA’s investment banking team reviewed the M&A activity of the largest technology services businesses and highlighted the key acquired technologies.

CFA’s John Holland

John Holland is the CFA’s managing director.

“The pandemic shocked the capital markets in March and April of 2020,” he said. “The pandemic caused the suspension or collapse of M&A deals at the time.”

Cybersecurity M&A Peaked in Q1

Cybersecurity acquisitions peaked during the first quarter of this year as many stalled deals finally crossed the finish line. The volume of M&A deals during the second quarter returned to a high, but not extraordinary level.

“Factors on both the sell-side and the buy-side are fueling the current frenzied pace of M&A activity,” Holland said. “As long as interest rates remain relatively low, acquirers will reap a relatively high return on investment from acquisitions.”

Meanwhile, many owners of privately held businesses expect the Biden administration to raise capital gains taxes significantly this year or next year, he said.

“Even if the Biden administration does not pass any legislation to raise capital gains taxes, many business owners expect tax increases in the future to cover the elevated federal government expenses,” Holland said.

Business owners could sell before any tax increases take effect, he said.

“Therefore, it’s a perfect storm with both acquirers and sellers of businesses highly motivated to execute M&A transactions,” Holland said.

Over the past few years, some global accounting/consultancy firms have built up their cybersecurity practices via acquisition, he said.

“This is an important trend that will continue as firms like Accenture, Deloitte, EY and KPMG that are trusted by so many enterprises capitalize upon the growing demand for cybersecurity solutions amongst businesses of all sizes,” Holland said. “Accenture has been the most acquisitive of these accounting/consultancy firms.”

Scroll through our gallery above for cybersecurity M&A highlights from the second quarter.