Private equity firms have cybersecurity stocks in sight

Private investment firms have their eyes set on beaten-down cybersecurity stocks, and here’s where they’re looking next…

Cybersecurity firms are hot acquisition targets

Security stocks are becoming much more attractive after the market collapse. The First Trust NASDAQ Cybersecurity ETF (NASDAQ:CIBR) is down 27% this year — outperforming the Nasdaq, which is down 32%.

• ForgeRock (NYSE:FORG) is being acquired for a 53% premium.
• KnowBe4 (NASDAQ:KNBE) is being acquired for a 44% premium.

ForgeRock’s acquirer, private equity firm Thoma Bravo, already acquired two other firms this year — SailPoint (48% premium) and Ping Identity (63% premium). Alphabet is also amping up its cybersecurity efforts — buying Mandiant at a 57% premium.

The next security company of interest

Splunk (NASDAQ:SPLK) is a $12B data analysis and security company that has been undergoing several business model and management changes since 2019.

They’ve received lots of interest this year:

• Cisco Systems was in discussion to buy Splunk for $20B this year, but the deal fell through.
• Private equity firm Hellman & Friedman took a 7.5% stake in Splunk — calling $SPLK undervalued with “tremendous long-term growth potential.”

On Monday, activist investor Starboard disclosed a nearly 5% stake in Splunk. $SPLK jumped 5% yesterday — now down 36% this year.

Here’s why it’s interesting: Starboard likes to go after companies that make for good acquisition targets or can benefit from operational improvements.

Investors: What’s next for $SPLK?

Last week, RBC also listed Splunk as a strong acquisition target and here’s what Needham analyst Mike Cikos (SA) has to say:

• Splunk being bought out is more likely than not. But even without an acquisition, $SPLK is a favorite at Needham.
• The new CEO didn’t “miss a quarter” while running the cybersecurity firm Proofpoint.

The Average Joe: “We don’t rely on acquisition rumors to drive investment decisions, but we do like the sector, and prices are getting better. Worth digging deeper.”