Public Valuation Pullback Reshapes Exit Environment in IT Security

As the bar to go public has gone up, high-growth IT security companies are actively pursuing alternative paths to liquidity.

Thursday, August 11, 2016

In 2013, 2014, and the first half of 2015, public markets were very receptive to high-growth IT security companies. Increased volatility in late summer 2015 and early 2016, however, caused a sharp reduction in investors’ risk appetites and a significant pullback in valuations for publicly traded IT security companies. While this valuation reset has made it more difficult for IT security companies to go public, the secular market dynamics that have driven the growth of the industry remain very much intact.

In today’s environment, IT security companies that would have been candidates to go public under previous market conditions are now actively pursuing alternative paths to liquidity via strategic acquisition, late-stage growth equity investment that includes secondary selling, or outright acquisition by well-capitalized private equity firms. We examine the forces that have caused the exit opportunities to morph in IT security and look at examples of transactions that illustrate today’s deal-making landscape.

Highlights of this issue of IT Security:

  • Symantec–Blue Coat illustrates continued strong demand from strategic acquirers
  • Financial sponsors aggressively pursue late-stage companies
  • Take-privates facilitate portfolio transformations
  • Carve-outs and spin-offs show continued portfolio rationalization by large IT providers

After significantly outperforming the broader market from July 2013 through July 2015, IT security companies have seen a dramatic pullback in valuations as volatility surged over the past 12 months. While this valuation reset has made it more difficult for IT security firms to go public, strategic acquisitions and late-stage growth investments continue to be attractive paths to liquidity given the industry’s strong secular growth dynamics.

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