Palo Alto Networks CEO Nikesh Arora has careworn repeatedly 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 sector and made him the CEO of a big cybersecurity firm,” he mentioned on Wednesday at a press convention hours after asserting the acquisition.
However one enterprise precept that guided him alongside the way in which teaches the whole doctrine of the cybersecurity business: “My methodology is to take one of the best firm in its subject, rapidly combine it into Palo Alto Networks and convey it to market in a short time together with the remainder of our merchandise – that is what I’ve all the time performed. Once 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 subject and within the subject 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 way in which to reach cybersecurity is to accumulate the businesses that lead the class, ideally when they’re nonetheless early stage and comparatively low cost. It isn’t all the time the main and dearer firm, generally it is doable to accept quantity two. This was the case, for instance, with Palo Alto’s acquisition of Israeli company knowledge 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, based on 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 truth, evidently CyberArk, an organization solely 20% the dimensions 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 can pay $25 billion for CyberArk, the huge bulk of which can be paid in shares. This deal is a form of “tremendous” that Nir Zuk’s cybersecurity large is paying for being late to the sector of AI. As know-how advances at a dizzying tempo, so too are the vulnerabilities and the probabilities 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 a minimum of 41 acquisitions since 2017 – a few of them, like Adaptive Defend and Stream 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 had been for a complete of just about $800 million.
Not each acquisition by Palo Alto has been profitable. It acquired Israeli cybersecurity firm Cider Safety for the appliance safety subject, and after a yr, staff had been laid off. Up to now, the sector has not likely taken off inside the firm. Palo Alto’s Prism cloud safety product is producing gross sales, nevertheless it has hit a glass ceiling and is reportedly being challenged by giants like Wiz, Orca, and CrowdStrike.
Efficiently merging corporations isn’t any straightforward process. Cisco acquired corporations in Israel like LightSpin and PortShift, which had been purported 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 tasks.
How do you turn out to be a superpower: Examine Level v Palo Alto
One reality is plain. In relation to the cybersecurity market, mergers and acquisitions are shaping the business and altering it from finish to finish. In 2023, 20 acquisitions had 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 form of division retailer the place you will discover 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 – had been on the high of the biggest corporations within the subject 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 subject. “Palo Alto started to make extra aggressive acquisitions of small gamers that led their market, and tended to pay a whole lot of thousands and thousands of {dollars} for corporations with single-digit annual income development even in areas that had been exterior its experience – company community safety.
“Examine Level, alternatively, was extra conservative, specializing in buying much less flashy corporations and normally paying quantities starting from tens of thousands and thousands of {dollars}, generally down to a couple 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 outstanding 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 may have been CyberArk. In 2016, it was reported that then Examine Level CEO Gil Shwed was interested by 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 price of $115 billion, and Fortinet with a price of $71 billion. After dropping 15% of its worth in sooner or later this week, Examine Level is ranked eighth with a price of about $20 billion. “In 2015, the mixture worth of cybersecurity corporations was $97 billion, at this time there are no less than two powerhouses which are every traded for over $100 billion,” says Junger. “Strategic acquisitions have turn out to be the driving drive behind the surge in cybersecurity mergers and acquisitions, which displays rising confidence on this business. Between 2022 and 2025, they had been answerable for offers value over $100 billion, even earlier than the CyberArk deal.”
The logic behind the acquisitions is evident: Whereas the business continues to develop, with a mean annual development charge of 19% in gross sales, the variety of cybersecurity software program merchandise utilized by the common knowledge safety supervisor in a US group ranges from 70 to 90 and might even attain 135 totally different merchandise, based on Silicon Angel. Palo Alto has mastered the artwork of “bundling,” or cybersecurity packages, during which it provides an extra 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 further suppliers. Generally Palo Alto goes the additional mile and buys an costly product, akin to Expanse for $670 million, and provides it without spending a dime to prospects simply to maintain them.
Cybersecurity is pushed, in fact, by mergers and acquisitions, however there’s a downside: the variety of potential patrons is restricted, 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 precise provide comes alongside. “However, the funds that spend money on cybersecurity are quietly residing with the present mannequin,” says Junger. “Have a look at what occurred with the information safety firm market (DSPM), with corporations like Dig, Eureka, Polar, Stream – most of them had 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. This can be 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 direction of shoppers, quite than buying managers in giant enterprises.
Are valuations already too inflated?
Israeli cybersecurity proves repeatedly that it exists individually from the remainder of the tech business, with a special financial logic, as a form of state inside a state. Inside six months, two offers from the sector have climbed to first and second place on the checklist of the largest-ever Israeli exits.
The privately-held tech firm market – development corporations and startups – proves this level. Based on 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 subject of defense-tech. Even the glamorous AI business 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 the whole tech business, cybersecurity crashed much less and is rising a lot sooner. The common Sequence 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. Based on knowledge from Altshare, which has developed a platform that enables primarily non-public corporations, entrepreneurs and buyers to handle their shares, the common 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 anticipated to succeed in $13 million by the top of the yr. For extra mature corporations in Sequence A funding, the valuation of corporations in new funding will enhance from $50 million on the finish of 2023 to $80 million by the top of 2025. The earnings a number of can be comparatively excessive all through all levels 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 whole 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 buyers) has doubled because the finish of 2023. “In cybersecurity, the workforce 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 nations all over the world,” Adv. Man Lachmann, accomplice and co-head of the IL high-tech follow 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 usually 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 virtually individually from different markets with its personal strategic patrons, common serial entrepreneurs and some buyers who perceive and are well-connected in it.”
The massive 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 akin to Wiz and Cyera, alongside Team8, Image Capital, Glilot Capital, Yoav Leitersdorf’s YL and Natan Shohami’s Hyperwise. Serial entrepreneurs, akin to Shlomo Kramer, Assaf Rapaport, Yevgeny Dibrov, Nir Zuk, Mickey Bodai and Amichai Shulman, spend money on one another and create a extremely concentrated cloth within the business. Overseas enterprise capital giants akin to Sequoia, Greylock, Index and Perception have recognized the area of interest and are at the moment main among the seed rounds within the subject, creating one other drawback – Israeli entrepreneurs who should not have even one Israeli investor on the board of administrators, an issue that would result in dropping their approach within the early levels.
Lachmann says, “The celebration of exits in cybersecurity creates a form of impact that pushes increasingly entrepreneurs into cybersecurity, which can create a larger problem down the highway. As a result of when a large like Palo Alto arrives and acquires a large like CyberArk, it signifies that the opposite corporations energetic in the identical market (id administration) will obtain smaller acquisition provides, if any. As well as, this will 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.
