Page 67 - CDM-Cyber-Warnings-March-2014

active acquirers Facebook, Apple and Yahoo haven’t made any acquisitions of security companies, focusing their resources on other areas. And then there is Hewlett-Packard. In early April CEO Meg Whitman stated that the company is on track for its five-year turnaround plan and outlined how acquisitions are part of her long-term strategy. HP is a prime example of history repeating itself. With the economy improving the company will use M&A to regain market share and catch up on innovation. Whitman stated that the growth areas include security, but also cloud computing and big data. HP, known for its billion dollar deals, doesn’t need a five or six billion dollar deal and instead is actively interested in deals in the $100 million to $300 million range, indicating the company is seeking out early stage companies for acquisition. Whitman said, “the company is not looking to buy growth but to further the strategic position in the marketplace for HP." According to Whitman, Hewlett- Packard will be "very judicious, very deliberate, make sure they are very strategic, and that we don't pay too much for these acquisitions." She said that she didn't want to repeat HP's history of making deals that "didn't work out too well." 2012 saw a number of IPOs in the IT security sector and that is helping to fuel the increased investment in the sector. AVG Technologies, Proofpoint, Splunk, Palo Alto Networks, and Qualys went public that year. 2013 saw FireEye, LifeLock and Barracuda going public. Will these companies use their funds to become active acquirers? Early indications are they will be and that the baton is being passed to smaller, more aggressive companies. Proofpoint acquired Armorize in August 2013 for $25 million. FireEye bought Secure DNA in September 2013 for $4.9 million and followed that up with the acquisition of Mandiant in January for a whopping $990 million. Palo Alto Networks acquired Morta Security in January for an undisclosed amount. According to SunTrust Robinson Humphrey, there were 22 M&A deals in 2013 and 7 so far in Q1 at an average enterprise value/revenue (EV/Revenues) multiple of 9.9x. This compares very favorably to current market conditions that demonstrate multiples of enterprise value to 2014 expected revenues (EV/2014E Revenues) in the following segments of:  Security Suite: 2.4x  Authentication: 2.6x  Firewall/UTM: 6.1x " # % " $ " # ! !