Palo Alto Networks CEO Nikesh Arora has confused time and again in interviews with journalists that till seven years in the past when he was appointed to the job by CTO and founder Nir Zuk, he knew nothing about cybersecurity. “They made enjoyable of the truth that they appointed a Google veteran who would not perceive the sphere and made him the CEO of a big cybersecurity firm,” he mentioned on Wednesday at a press convention hours after saying the acquisition.
However one enterprise precept that guided him alongside the best way teaches your entire doctrine of the cybersecurity trade: “My technique is to take the most effective firm in its area, shortly combine it into Palo Alto Networks and produce it to market in a short time together with the remainder of our merchandise – that is what I’ve at all times achieved. After we purchased a browser (Israeli firm Talon), nobody understood why we did it, however in a short time we noticed different corporations like Google and Microsoft launch their very own safe browser. The identical was true within the database area and within the area of command and management facilities. I am not going to spend 4 years creating a product from scratch now, hoping that it’s going to match into the market. I am panicking about AI and we’re already behind in securing synthetic intelligence brokers.”
Arora understood that the best way to achieve cybersecurity is to amass the businesses that lead the class, ideally when they’re nonetheless early stage and comparatively low cost. It’s not at all times the main and costlier firm, typically it is potential to accept quantity two. This was the case, for instance, with Palo Alto’s acquisition of Israeli company information safety firm Dig Safety for $400 million (competing with Cyera, which is at the moment value $6 billion), and the acquisition of the safe browser firm Talon for $458 million (competing with Island, which is at the moment value $5 billion). These retained very high-quality groups and generated preliminary income, even when fairly small. Till this week, Palo Alto had made practically 30 acquisitions since 2013, in line with the PitchBook database, none of which exceeded the billion greenback mark. Solely earlier this month, Globes reported its acquisition of cybersecurity firm AI Defend for $700 million, simply three years after its founding.
In actual fact, evidently CyberArk, an organization solely 20% the scale of Palo Alto Networks, has been far more daring in its acquisitions. Final yr, it acquired its main rival Venafi for $1.5 billion.
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Palo Alto Networks pays $25 billion for CyberArk, the huge bulk of which will probably be paid in shares. This deal is a sort of “fantastic” that Nir Zuk’s cybersecurity large is paying for being late to the sphere of AI. As know-how advances at a dizzying tempo, so too are the vulnerabilities and the chances of hackers and different cyber attackers.
Palo Alto has taken acquisitions to the intense
Palo Alto Networks has taken acquisitions to the intense, however it’s not the one main cybersecurity firm to take action. US rival CrowdStrike has made at least 41 acquisitions since 2017 – a few of them, like Adaptive Protect and Movement Safety, are Israeli firm. Veteran cybersecurity firm Fortinet has made 37 acquisitions, and Israel’s Examine Level has made 26 acquisitions. Even Wiz understood the foundations of the sport and, simply earlier than being acquired by Google in an enormous $32 billion deal, it acquired 4 corporations, the biggest of which, Gem and Dazz have been for a complete of virtually $800 million.
Not each acquisition by Palo Alto has been profitable. It acquired Israeli cybersecurity firm Cider Safety for the applying safety area, and after a yr, staff have been laid off. To this point, the sphere has probably not taken off inside the firm. Palo Alto’s Prism cloud safety product is producing gross sales, however it has hit a glass ceiling and is reportedly being challenged by giants like Wiz, Orca, and CrowdStrike.
Efficiently merging corporations isn’t any simple job. Cisco acquired corporations in Israel like LightSpin and PortShift, which have been alleged to be the reply to Wiz, however had problem integrating the product into the market. Epsagon, which it acquired for $500 million, had its key staff transferred to develop different merchandise whereas it turned open supply. Even when merchandise don’t finally match into the market, the staff are simply moved to different growth initiatives.
How do you turn out to be a superpower: Examine Level v Palo Alto
One reality is simple. In relation to the cybersecurity market, mergers and acquisitions are shaping the trade and altering it from finish to finish. In 2023, 20 acquisitions have been made for greater than $200 million, for a complete of $43 billion. A yr later, the variety of offers on the excessive threshold elevated to 30, for a complete of over $35 billion. To this point in 2025, offers value $60 billion have already been closed, and that’s with out counting Amiram Shahar’s Upwind in talks to be offered for $1 billion.
These acquisitions have contributed to the creation of cybersecurity superpowers – large corporations that function a sort of division retailer the place you’ll find a wide range of options in a single place. “A decade in the past, the 2 largest cybersecurity corporations – Palo Alto Networks and Examine Level – have been on the prime of the biggest corporations within the area with a market worth of about $15 billion every,” says Oren Junger, managing accomplice on the enterprise capital fund Notable, which invests in cybersecurity and enterprise software program corporations, together with Israeli corporations, and has carried out particular analysis on mergers and acquisitions within the area. “Palo Alto started to make extra aggressive acquisitions of small gamers that led their market, and tended to pay tons of of thousands and thousands of {dollars} for corporations with single-digit annual income development even in areas that have been exterior its experience – company community safety.
“Examine Level, then again, was extra conservative, specializing in buying much less flashy corporations and normally paying quantities starting from tens of thousands and thousands of {dollars}, typically down to some hundred thousand. Right now, with Palo Alto Networks value over $115 billion and Examine Level value about $20 billion, it’s clear that aggressive acquisitions of corporations with distinguished entrepreneurs and powerful expertise was a worthwhile transfer, even when it didn’t appear worthwhile at first.”
Examine Level has acquired 26 corporations through the years. It has not but purchased an organization for greater than $1 billion. One of many acquisitions by the Israeli community safety large might have been CyberArk. In 2016, it was reported that then Examine Level CEO Gil Shwed was thinking about buying CyberArk, which was then value solely $1.7 billion.
Right now, the cybersecurity powerhouses are Palo Alto, with a market cap of $115 billion, Crowdstrike with a worth of $115 billion, and Fortinet with a worth of $71 billion. After shedding 15% of its worth in in the future this week, Examine Level is ranked eighth with a worth of about $20 billion. “In 2015, the combination worth of cybersecurity corporations was $97 billion, at this time there are at the very least two powerhouses which can be every traded for over $100 billion,” says Junger. “Strategic acquisitions have turn out to be the driving power behind the surge in cybersecurity mergers and acquisitions, which displays rising confidence on this trade. Between 2022 and 2025, they have been liable for offers value over $100 billion, even earlier than the CyberArk deal.”
The logic behind the acquisitions is obvious: Whereas the trade continues to develop, with a mean annual development fee of 19% in gross sales, the variety of cybersecurity software program merchandise utilized by the typical information safety supervisor in a US group ranges from 70 to 90 and may even attain 135 totally different merchandise, in line with Silicon Angel. Palo Alto has mastered the artwork of “bundling,” or cybersecurity packages, during which it affords a further product at a reduction to those that already use a number of of its different merchandise, to save lots of safety managers the necessity to discover extra suppliers. Typically Palo Alto goes the additional mile and buys an costly product, corresponding to Expanse for $670 million, and affords it at no cost to prospects simply to maintain them.
Cybersecurity is pushed, in fact, by mergers and acquisitions, however there’s a downside: the variety of potential consumers is proscribed, definitely if it’s a firm value billions of {dollars} like CyberArk or Wiz. CyberArk has repeatedly mentioned that it’s not on the market, till the appropriate supply comes alongside. “Then again, the funds that spend money on cybersecurity are quietly residing with the prevailing mannequin,” says Junger. “Take a look at what occurred with the info safety firm market (DSPM), with corporations like Dig, Eureka, Polar, Movement – most of them have been ultimately acquired, even when for smaller quantities. Cybersecurity managers get up within the morning and ask what they’re lacking and that is how new industries are born on a regular basis. It is a dynamic that you do not see in different fields, like fintech, for instance, as a result of nature of the market, which is biased in the direction of shoppers, somewhat than buying managers in massive enterprises.
Are valuations already too inflated?
Israeli cybersecurity proves again and again that it exists individually from the remainder of the tech trade, with a distinct financial logic, as a sort of state inside a state. Inside six months, two offers from the sphere have climbed to first and second place on the listing of the largest-ever Israeli exits.
The privately-held tech firm market – development corporations and startups – proves this level. In keeping with IVC – LeumiTech, fundraising for cybersecurity corporations stands out above all others with a complete funding of $2.5 billion within the first half of 2025, in comparison with solely $1 billion in fintech corporations and $500 million for the rising area of defense-tech. Even the glamorous AI trade is unable to compete with cybersecurity and raised “solely” $1.5 billion within the first half of 2025. Though the restoration from the financing disaster of 2022-2023 impacts your entire tech trade, cybersecurity crashed much less and is rising a lot quicker. The common Collection A spherical funding for an organization is $24.5 million in cybersecurity, in contrast with $12.8 million in insurtech and fintech, and $15.5 million in enterprise software program.
The big hole can be mirrored within the inflated valuations of cybersecurity corporations. In keeping with information from Altshare, which has developed a platform that enables primarily personal corporations, entrepreneurs and traders to handle their shares, the typical worth of funding in seed corporations within the cybersecurity sector elevated from $8 million on the finish of 2024 to $12.4 million within the second quarter of 2025 and is predicted to succeed in $13 million by the tip of the yr. For extra mature corporations in Collection A funding, the valuation of corporations in new funding will improve from $50 million on the finish of 2023 to $80 million by the tip of 2025. The earnings a number of can be comparatively excessive all through all phases of the businesses, with a mean of 5.3 in contrast with 4 in fintech.
Altshare CEO Ronen Solomon explains that cybersecurity companiesw distribute extra choices as a relative proportion of the corporate’s complete shares – 15% greater than in different corporations, and that at cybersecurity corporations, the speed of corporations which have a secondary spherical (during which entrepreneurs and staff promote shares on to traders) has doubled because the finish of 2023. “In cybersecurity, the group would not come for the wage, as a result of they know they will get upside in choices and secondary rounds,” says Solomon.
“You get a premium just by being Israeli” “The cybersecurity market is at the moment in its golden age for a wide range of causes: the proliferation of options from numerous fields, the rise of AI that’s deterring many gamers, and in addition the rise in protection budgets amongst international locations around the globe,” Adv. Man Lachmann, accomplice and co-head of the IL high-tech observe group at Pearl Cohen, tells Globes. “Inside this market, Israel has been thought of a world chief for a number of years and Israeli corporations are typically on the forefront of varied branches inside cybersecurity. They’re additionally much less delicate to the political dangers that different Israeli know-how corporations expertise and right here there’s a premium you obtain just by being Israeli. Nonetheless, this market is carried out nearly individually from different markets with its personal strategic consumers, common serial entrepreneurs and some traders who perceive and are well-connected in it.”
The large entrepreneurs spend money on one another
In Israel, for instance, most investments in cybersecurity are concentrated within the fingers of a small variety of funds: Gili Raanan’s Cyberstarts – the fund behind successes corresponding to Wiz and Cyera, alongside Team8, Image Capital, Glilot Capital, Yoav Leitersdorf’s YL and Natan Shohami’s Hyperwise. Serial entrepreneurs, corresponding to Shlomo Kramer, Assaf Rapaport, Yevgeny Dibrov, Nir Zuk, Mickey Bodai and Amichai Shulman, spend money on one another and create a extremely concentrated material within the trade. Overseas enterprise capital giants corresponding to Sequoia, Greylock, Index and Perception have recognized the area of interest and are at the moment main among the seed rounds within the area, creating one other drawback – Israeli entrepreneurs who do not need even one Israeli investor on the board of administrators, an issue that might result in shedding their method within the early phases.
Lachmann says, “The celebration of exits in cybersecurity creates a sort of impact that pushes increasingly entrepreneurs into cybersecurity, which can create a better problem down the street. As a result of when an enormous like Palo Alto arrives and acquires an enormous like CyberArk, it implies that the opposite corporations lively in the identical market (identification administration) will obtain smaller acquisition affords, if any. As well as, this will likely result in degeneration in different know-how areas – each golden age reaches a sure saturation level.”
Revealed by Globes, Israel enterprise information – en.globes.co.il – on August 3, 2025.
© Copyright of Globes Writer Itonut (1983) Ltd., 2025.
