Cybersecurity – Deal resurgence

Gaps in a target's cyber posture creates risk, and vulnerabilities could pose not only legal but also financial, capital expenditure and reputational risks post-acquisition. As a result, it is now commonplace to assess a target’s data protection policies, security standards and incident response plans as part of any robust due diligence process.

In France, for example, in a 2021 survey, 68% of private equity portfolio companies reported an increase in cyber incidents during the month of a deal closure. The French national cybersecurity agency (ANSSI) noted that these companies were considered easier targets with more financial resources to pay ransomware demands. It is therefore hardly surprising that French cybersecurity companies are particularly acquisitive, reflecting the industry’s dynamic growth and strategic importance. In 2023, Thales Group acquired U.S.-based cybersecurity company Imperva for approximately $3.6 billion, Wallix, a French cybersecurity software provider, acquired Kleverware, specialising in identity governance and administration, and IN Groupe, formerly known as Imprimerie Nationale, announced in September 2024 its intention to acquire the Smart Identity division of Idemia. These acquisitions illustrate the proactive efforts of French companies to enhance their cybersecurity offering and expand their global footprint in response to evolving digital threats.

In Italy, cybersecurity risks are becoming a critical factor in M&A, driven again by strict EU regulations - most recently the AI Act, from which sanctions will soon begin - as well as the increasing frequency of cyber threats. Indeed, 73% of large Italian companies experienced at least one cyberattack in 2024.

Given these factors, the Italian cybersecurity market has demonstrated strong growth, reaching €2.48 billion in 2024, a 15% increase from the previous year. This growth reflects the heightened corporate focus on cybersecurity as a strategic priority. Italian companies are also strengthening their cybersecurity capabilities through targeted acquisitions, eg. SYS-DAT Group’s August 2024 acquisition of Flexxa, a firm recognised for its expertise in cybersecurity and business continuity services. As Italy faces a growing number of cyber threats and increasing regulatory complexities, cybersecurity diligence in M&A transactions is no longer optional and these strategic moves illustrate the proactive approach Italian companies are taking to fortify their cybersecurity infrastructure in response to the evolving digital threat landscape.

Key drivers of cybersecurity M&A in 2024 and our expectations for 2025

The rise of M&A activity in the cybersecurity sector in 2024 was shaped by a combination of escalating cyber threats, AI advancements, and evolving regulatory and market dynamics —ultimately increasing the profit potential of cybersecurity businesses and resultant interest in acquisitions. With the industry remaining highly fragmented and favourable market conditions fostering confidence, businesses are poised to pursue strategic M&A deals. The key drivers influencing M&A activity in 2024 and shaping the outlook for 2025 are:

• Escalating cyber risks spurring demand for innovation
  The rise of ever-evolving digital threats, including sophisticated AI-powered attacks, has heightened the need for cutting-edge solutions. Businesses are turning to offensive security measures and managed security services to reduce vulnerabilities, minimise attack surface, and prioritise responses to critical threats. These escalating risks are a key driver for M&A as organisations seek to bolster their defences against the daily barrage of cyberattacks, making cyber specialists in-demand, profitable, and thus targets for acquisitions.
   
• Evolving regulatory landscape reshaping M&A strategies
  As cyber threats intensify, regulatory bodies are enforcing stricter compliance standards for businesses. The EU, in particular, is setting a high bar with sweeping reforms, placing pressure on both EU and non-EU-based organisations operating internationally to align with these rigorous regulations. This evolving landscape is expected to influence deal strategies as businesses seek to prioritise both security and regulatory demands, with compliance-focused acquisitions becoming increasingly attractive for their potential to drive revenue growth in a more regulated environment.
   
• AI advancements as a key driver for consolidation
  AI is also anticipated to play an increasingly pivotal role in strengthening M&A activity in the cybersecurity industry. Companies are leveraging AI-powered tools for threat detection, predictive analytics, and security automation, making these areas attractive targets for acquisition. For example, major players such as Cisco, Palo Alto Networks and CrowdStrike are expected to pursue acquisitions to enhance their AI-driven security offerings. Similarly, hyperscalers like Microsoft, Alphabet, and Amazon are investing heavily in AI to reduce their threat exposure. Private equity firms and financial services providers are also expected to contribute significantly, with Thoma Bravo emerging as a key player in recent cybersecurity consolidations. See our article on M&A and AI for more information.
   
• The cybersecurity sector remains highly fragmented
  The highly fragmented nature of the cybersecurity industry, with numerous small and independent businesses, presents ongoing opportunities for strategic consolidation. This fragmentation, coupled with escalating cyber risks, ensures a steady stream of acquisitions as companies aim to strengthen their resilience against increasingly sophisticated attacks, while capitalising on the revenue opportunities offered by innovative cybersecurity solutions.
   
• Favourable market conditions
  The easing of political uncertainty following elections in the US and UK, coupled with strong prospects of a merger-friendly regulatory environment through the shift in antitrust policies under the Trump administration, is renewing confidence to sustain M&A momentum.  This upward trajectory is expected to continue throughout 2025. Additionally, the interest rate cuts by the Federal Reserve and lower inflation are creating a more favourable climate for dealmaking. These factors could drive increased activity by financial buyers, including platform investments and add-ons.