The stock price of Palo Alto Networks has risen due to strong profits and growing demand for cybersecurity services, and now the company is using this momentum to make some purchases.
Timenow has confirmed with several sources that Palo Alto is in advanced talks to buy not one but two security startups from Israel for a total of about $ 1 billion to expand its service portfolio.
Specifically, we are talking about Talon Cyber Security – which has developed a corporate browser for distributed security employees – for between $ 600 and $ 700 million; and Dig Security — a specialist in data protection in public clouds — for between $ 300 and $ 400 million. Palo Alto is listed on the stock exchange and currently has a market value of about $ 70 billion.
Both startups are less than three years old, and in both cases these would be solid results compared to their existing valuations.
Talon raked in about $143 million and only dug about $45 million. The investors include Entrée Capital, Evolution Equity and LightSpeed as well as Signal Fire, Okta, CrowdStrike, Samsung and Felicis. The two also have joint investors: cybersecurity specialists Team8 and Cyverse Capital.
As I understand it, Palo Alto proactively approached both startups: neither was available to acquire on the market.
Palo Alto Networks and Dig declined to comment for this story; Talon has not yet responded. But several sources close to the deal, contacted by Timenow, confirmed the prices and said the negotiations are at an advanced stage — though not completed.
For more information about the current deals, the Israeli publication Calcalist reported last week about both deals with the same figures that we have heard (here and here ).
The agreements highlight some important trends that are currently taking place in the cybersecurity industry.
First and foremost, security remains a high priority for businesses and small businesses.
A McKinsey report from last year finds that breaches are on track to cost a total of $10.5 trillion annually by 2025, an increase of 300 percent over the 2015 figures. While many companies have restricted their IT spending and budgets over the past two years, security is one area where they have made spending again, even if other categories have remained frozen or restricted.
“For end customers, security is still a big business risk, so budgets are back in action and we are seeing revenue increases in the third and fourth quarters,” a source said. “Security companies will want to aggressively take advantage of this opportunity.”
Second, cybersecurity remains a moving target. Malicious hackers are turning to technologies like AI to break into networks. As small startups develop new cyber technologies, they become takeover targets for larger companies that want to stay ahead of the curve.
Other examples of this include CrowdStrike’s acquisition of security startup Bionic for $350 million and IBM’s purchase of Polar earlier this year for $60 million – a deal that IBM, we understand, made in part in response to Palo Alto’s purchase of Cider Security in 2022.
There are also mega deals in this trend, such as Cisco’s plan to buy Splunk for $ 28 billion .
For security companies, it becomes a competitive advantage both against malicious hackers and against other security companies. “Palo Alto is buying in part in response to these deals,” a source said. Some of Palo Alto’s competitors, such as Wiz, which is now worth $ 10 billion, are also part of this competitive threat.
Both Talon and Dig work in newer areas of the securities market, which would make them particularly attractive for a larger acquirer. (We understand that there seemed to be other people looking at both of them before.)
Dig’s efforts to protect data in the cloud and work with fragmented data across multiple clouds are opening up a growing market area – cloud spending is one of the few other areas where budgets are not currently being cut. It is a very competitive field, but also an excellent opportunity to establish yourself as a leader in adapting solutions to the actual way companies work in the real world.
On the other hand, Talon’s focus on the enterprise browser concept — a platform for large organizations to run all their applications and services, designed from the ground up with security in mind — is still relatively new to the market, but has already started. to get along with customers and competitors ( Iceland is another company in the same room, so this is another company to keep an eye on).
“They are creating a new category that has the potential to be greater than endpoint security,” a source said. “They’re reinventing the operating system.”
In the IT world, the pendulum is definitely swinging between huge multifunctional platforms and customers who opt for first-class point solutions. In cybersecurity nowadays, given the number of acquisitions we have heard about, the shift definitely seems to be towards large platforms, and this is what is happening here with these two companies. The big question is to what extent those who make the purchases digest these companies and how this is presented to the end consumers.
A source told us that customers who are separating from Palo Alto are currently doing so in part because they “feel that the product is disconnected” – the company now has more than 30 products and services and has made a total of 17 acquisitions. When these two close, the question will be how Nikesh Arora, CEO of Palo Alto Networks, wants to present a holistic view of how to deal with a still very fragmented and dangerous threat landscape.