A version of this article originally appeared on Calcalist on Dec. 28, 2023.
The Israeli tech ecosystem is one of the most resilient and innovative startup communities in the world. One such area that Israel has always been at the forefront of is cybersecurity — the ScaleUp nation has played a central role in building the global cybersecurity ecosystem. At Insight Partners, we’ve been privileged to take part in this phenomenon over the years as an active investor in more than 20 Israeli cybersecurity companies.
Recently, we’ve seen successful outcomes across Insight’s cyber portfolio through M&A, including the acquisitions of Perimeter 81 by Check Point, Laminar by Rubrik, and Bionic by CrowdStrike. This is yet another proof point of Israel’s ability to produce world-class cyber startups, and it also indicates a pattern that is likely to persist across the global cybersecurity industry.
The uptick in acquisition events is likely driven by various factors, including both the inevitable consolidation of solution sets within the broader landscape and the macroenvironment. In this market, both buyers and their end customers are attracted to all-encompassing platform solutions. However, the best solutions are often developed by startups focused on specific problems, which Israeli founders and teams are uniquely capable of solving as cybersecurity is often a focus in universities and compulsory IDF military service. Larger cyber companies understand this trend and, therefore, seek to acquire strong technology that they can embed in their platforms and distribution channels. From a macro perspective, the slower funding and IPO environment have pushed companies to consider strategic M&A sooner as a viable and compelling exit opportunity.
We expect to see more cyber mergers and acquisitions as companies evaluate their future paths. There are many situations where one plus one can equal three, and when management teams and founders are aligned on a combined vision, tremendous value can be created.
Growing corporate vulnerabilities and geopolitical tensions will likely increase pace of large cap M&A, as cyber specifically addresses the need of bolstering corporate and national defense. This, in turn, will drive more cyber M&A from three specific stakeholders: hyperscalers, cyber strategics, and new entrants.
- Hyperscalers: Microsoft recently closed its acquisition of Activision and will now have the capacity to resume M&A activity. Google’s acquisition of Mandiant in 2022 laid the foundation for their cyber platform, which they will want to continue to build upon with additional M&A. And Amazon, who has a reputation of staying on the sidelines, can enter the playing field as well.
- Cyber strategics: Players like Palo Alto Networks, Zscaler, CrowdStrike, and SentinelOne will further build out their product suites through strategic M&A and will acquire into new markets to justify their multiples with TAM expansion. As we have already started to see, these players are willing to pay high multiples if the target’s enterprise value on a cash basis is low enough relative to their existing cash balance.
- New entrants: New orthogonal strategic entrants like Nvidia, who can leverage their strong stock currency have the capacity to enter the cyber M&A game as well.
All in all, there are many reasons to believe that Israeli cyber M&A will not only continue but also accelerate. The combination of the strong Israeli cyber ecosystem and the value creation already shown is sure to invite new startups into the ecosystem as well as buyers looking to capitalize on exceptional technology, talent, and businesses.
Insight Partners is an investor in Perimeter 81, Laminar, Bionic and SentinelOne.