Spending on Security Companies Booming, PwC Finds

The $60 billion global computer security industry has become a hot sector for a range of investors, including mainstream IT companies, aerospace, defense giants and private equity, a PricewaterhouseCoopers (PwC) analysis has reported.

With the exception of the recessionary year of 2009, the last three years has seen an M&A mini-boom with spending on security companies rising every year to reach record heights in 2011, which has already recorded $10.1 billion of deals.

This figure was exaggerated by the huge $7.8 billion Intel paid for McAfee in February, but there have been other notable deals in the current year including the $612 million Dell paid for SecureWorks, and Raytheon's $490 buy of Applied Signal Technology.

The rationale for buying security companies varies from sector to sector. Defense contractors want to diversify as military spending is constrained by financial deficits in many NATO countries, while rival tech companies simply see security as a lucrative element to add to their portfolios.

Private equity and the wider investment community, meanwhile, have simply noticed the sudden interest in security companies and turned up to reap some of its rewards.

Publicly-quoted security companies have also benefited, seeing their price-earnings multiples range from the humdrum 14.1 for mature businesses such as Symantec to as much as 51 for smaller companies Fortinet and Sourcefire.

PwC sees no letup in the interest in security on the back of a predicted growth rate in spending on the industry's products of close to 10 percent per annum for at least the next three to five years.

Even with a possible second recession in three years, underlying trends almost guarantee this growth; security is playing catch-up against threats that have evolved more rapidly than people thought likely only half a decade ago.

"Growing threats and awareness, and changes in technology such as mobile devices and cloud computing are key drivers of spending growth in the cyber security market," said PwC's Barry Jaber.