Cyber Security

NYSE:CS

Avast Software will pay $1.3 billion in cash for rival cybersecurity company AVG Technologies N.V.

The cybersecurity market has seen lots of M&A action recently and this doesn’t appear to be slowing down. On Thursday, security software provider Avast Software revealed that it plans to acquire rival AVG Technologies N.V. (NYSE:AVG) for a cool $1.3 billion in cash.
The acquisition is a move to tap into the ever growing cybersecurity market, which Cybersecurity Ventures predicts will rake in $1 trillion in global spending between 2017 and 2021.

Avast moves in for the acquisition

Avast Software is a Czech Republic-based software company that offers cybersecurity software for both personal computers and mobile devices. The company will purchase all of AVG Technologies’ outstanding ordinary shares for $25.00 per share, representing a 33-percent premium over AGV’s closing price on the New York Stock Exchange on Wednesday afternoon.
The Wall Street Journal reports that Avast intends to finance this acquisition through a combination of internal resources and debt financing from third-party lenders. Specifically, it has secured a financing commitment of $1.69 billion from Credit Suisse Securities (NYSE:CS), Jefferies (NYSE:JEF) and UBS Investment Bank (OTCMKTS:OUBSF) and has contributed $150 million in equity investment to fund the deal.

Motivations behind the acquisition

Avast’s decision to acquire AVG appears simple: the company is trying to gain an edge in the highly dynamic industry filled with both competition and potential. “We are in a rapidly changing industry, and this acquisition gives us the breadth and technological depth to be the security provider of choice for our current and future customers,” states Vince Steckler, chief executive officer of Avast Software. The acquisition will open Avast to a network in excess of 400 million endpoints which act as de facto sensors, providing information about malware to help suss out and dismantle new threats as soon as they become known.

Competitive landscape

The current competitive landscape in the cybersecurity market has created a challenging environment for small cap companies struggling to differentiate themselves. However, some companies have managed to whether the tide and prove themselves unique in this intense cyber market. For instance, F-Secure Oyj (HEL:FSC1V) is a Finland-based company engaged in the development and marketing of software products for digital content security. Its software offering includes software products for digital content protection, such as Internet security, antivirus, mobile security and anti-theft software, as well as a range of free online tools. With a market cap of $427.27 million, the company has seen 4.26-percent share price growth in 2016.


Meanwhile, other small cap companies have managed to thrive, despite the challenges lurking ahead in the cybersecurity market. Mitek Systems (NASDAQ:MITK), a company that develops, markets and sells mobile capture and identity verification software solutions for enterprise customers, has seen a whopping 74.57-percent growth so far this year. With a market cap of $229.72 billion, the company’s technology allows users to remotely deposit checks, open accounts, get insurance quotes, pay bills, as well as verify their identity by taking pictures of various documents with camera-equipped smartphones and tablets instead of using the device keyboard.
It remains to be seen if these companies will be acquired, like AVG was on Wednesday. But regardless of their uncertain future, they may be worth a second look by investors. After all, M&A activity can have a positive effect on share price, as the Avast acquisition illustrated.
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Securities Disclosure: I, Morag McGreevey, hold no direct investment interest in any company mentioned in this article.

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