KBS - Cyber Security & I.T. Infrastructure - Market Insight

KEY DRIVERS AND MOTIVATIONS FOR ACQUIRERS 1. INTEGRATION OF TECHNOLOGIES, SUCH AS THE INTERNET OF THINGS (IOT), MACHINE LEARNING AND CLOUD, TO DRIVE MARKET GROWTH Due to a rise in I.T. security threats, and hence the increased importance of I.T. security, companies need to invest in safer and more resilient systems. Core technologies, such as the Internet of Things (IoT), Machine Learning (ML) and Cloud, along with big data, are being utilised in security systems. AI is also helping to detect certain threats. The adoption of these technologies, in particular IoT, is a recent emerging trend. The I.T. security market is growing due to:

• The increasing importance of data privacy • Cyber security transformation due to AI and ML • Business strategy and security integration • Growing zero-trust architecture and approaching methods 2. THE UK I.T. SERVICES SECTOR IS ENTERING A GROWTH PHASE

Q3 2024 showed a significant increase in the number of deals being completed – 162, compared with the 151 transactions logged in Q2, an increase of 7%. That raised the total number of deals within the last three years to 1,687. The market was positioned for growth due to factors such as the improving economy, an expected reduction in interest rates and business owners predicting changes in the UK’s Capital Gains Tax regime. 3. THE GLOBAL I.T. SECTOR The global M&A market has withstood continuing economic uncertainties and geopolitical tensions, with total deal value reaching an impressive $9.2bn in Q3 2024, remarkably higher than the $2.2bn recorded in the equivalent 2023 quarter. 4. PE INVOLVEMENT IS HIGH – HOWEVER, TRADE BUYERS ARE ENTERING THE MARKET Private equity still accounts for most transactions, but the increasing percentage of non-private equity deals demonstrates that trade buyers are returning to the market. Overall in Q3 2024, of the 162 deals completed, 67% were backed by PE.

PE firms are pursuing a buy-and-build platform strategy for bolt-on acquisitions, focusing on acquiring new capabilities and expanding into new markets.

Various strategies have been pursued, including large buyouts such as Thoma Bravo acquiring Darktrace, a UK cyber security company, for $5.3bn. Thoma Bravo has the size and power to build platforms and buy established companies. In contrast, growth-stage investors will invest into technologies that will be scaled and then sold on, e.g. Tikehau Capital has set up a fund for cyber security software opportunities.