Cybersecurity startup valuations command high revenue multiples

Check Point offices credit: Tali Bogdansky
Check Point offices credit: Tali Bogdansky

Israeli cybersecurity startups are being sold at very profitable valuations for entrepreneurs and investors.

The shopping spree by cybersecurity giants Palo Alto Networks, Check Point, CrowdStrike and Tenable in Israel, has led to seven acquisitions of cybersecurity startups. Talks are also underway, some of which have been reported, for acquisitions worth many hundreds of millions of dollars.

These are very profitable deals for the entrepreneurs and investors behind the companies, because sources familiar with the acquisitions have told "Globes" that the vast majority of companies were sold at a very generous multiplier on revenues, or due to the favorite statistic of cybersecurity startups, "annual recurring revenue" (ARR), a non-accounting term that provides a snapshot of the company's revenue growth rate.

Thus, Globes has been told that the ARR of, which was acquired last month by CrowdStrike for $350 million, was no more than $5 million - that is, a multiple of 70 times the figure. Axis Security, which was sold for $412 million last March to software giant HPE, then has a ARR of $7-9 million, and is now approaching $10 million, which means it was acquired at a multiple of 40 times its revenue. Perimeter 81, which was acquired by Check Point for $490 million, has ARR of between $14 and $15 million, a multiple of 33 of its revenue, even though the company was required to transfer $100 million to investors before the "spoils were distributed" following the exit.

The multiples of the cybersecurity companies currently in talks to be acquired are also high, even by the standards of recent acquisitions. Dig Security is negotiating to be acquired by Palo Alto for $350 million, a multiple of 87, on its ARR of just $4 million, while Talon has estimated ARR of $10 million, a multiple of 60-70.

A cybersecurity arms race

Behind these multiples, is the cybersecurity arms race currently taking place between the world's largest cybersecurity companies. This situation stems, in part, from the global economic crisis. Data security managers in organizations are tired of buying expensive cybersecurity software and services separately. They now seek a small number of suppliers who will sell them a large number of products at a significant discount. The large and profitable companies like Check Point, Cisco and Palo Alto have the power to do this by financing short-term contract losses for long-term profit. Palo Alto Networks outlined this strategy in a presentation in August , when it mapped acquisitions and growth and market direction.

Is this high revenue multiple in acquisitions a new phenomenon? "Globes" found that in the past acquisitions were also made at excessive amounts in relation to the revenues. Thus, for example, Simplify was purchased by Google for $500 million at the beginning of 2022, while ARR was $10 million. Assaf Rappaport's Adalom, which was Microsoft's first cybersecurity acquisition in Israel, was sold for $320 million, with an ARR of less than $5 million. Despite the high multiplier, the deal also paid off for Microsoft. A year later, it sold $400 million worth of the product.

All the companies declined to respond. Gili Ra'anan founding partner of the Cyberstarts venture capital fund, which invests in some of the companies mentioned in this article, including and Axis, "Cybersecurity companies are bought at high values, because the variety of cybersecurity threats to large organizations is growing rapidly and requires original and innovative solutions. The large cybersecurity companies cannot keep up with this pace, and turn to acquisitions that will fill significant gaps in their product lines. The acquired assets are technology and a team that is an expert in the field, not only in the development of the product, but also in its implementation, in its market, and in the way it is presented to potential customers. ARR is seen by buyers as proof of the relative maturity of the product, but not as a basis for determining the price. The purchase of Adalom by Microsoft about nine years ago is an excellent example of how a global company accelerated its transformation into a cybersecurity power, following the acquisition of a company that was considered small in terms of revenue, but with a winning technology."

Published by Globes, Israel business news - - on October 2, 2023.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2023.

Check Point offices credit: Tali Bogdansky
Check Point offices credit: Tali Bogdansky
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