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Turning Cybersecurity into a Competitive Advantage

Turning Cybersecurity into a Competitive Advantage

The escalating threat of cyberattacks in a hyper-digitalized world has brought cybersecurity to the forefront of global business priorities. Nowhere is this more evident than in the private equity (PE) sector, where sensitive data, high-value transactions, and interconnected networks present a unique vulnerability landscape.

January 29, 2025 • Estimated Reading Time: 15 minutes

Cybersecurity Market Size
Private equity investments in Cybersecurity
Geographical distribution
Largest transactions in 2024
Cybersecurity Use in Private Equity Firms
The Growing Threat Landscape
Building a Robust Cybersecurity Program
Cybersecurity as a Value Creation Lever
Implementation Strategies for Long-Term Security
Conclusion
Sources & References

The escalating threat of cyberattacks in a hyper-digitalized world has brought cybersecurity to the forefront of global business priorities. Nowhere is this more evident than in the private equity (PE) sector, where sensitive data, high-value transactions, and interconnected networks present a unique vulnerability landscape.

Cybersecurity has evolved from being a defensive necessity to a strategic imperative, with its market projected to reach $271.9 billion by 2029, driven by innovations in AI, IoT, and cloud computing. For PE firms, the stakes are high, not only in safeguarding their operations but also in identifying lucrative investment opportunities within this burgeoning industry. This report delves into the critical intersection of cybersecurity and private equity, exploring market trends, investment dynamics, geographical distributions, and actionable strategies for turning cybersecurity from a challenge into a competitive advantage.

Cybersecurity Market Size

The global cybersecurity market has witnessed unprecedented growth over the past decade, driven by the rapid digitization of industries and an ever-increasing volume of cyber threats. As highlighted in the chart, the market has grown from $83.32 billion in 2016 to an impressive $139.9 billion in 2021, reflecting the urgency with which businesses are prioritizing cybersecurity solutions. This exponential growth trajectory underscores the vital role cybersecurity plays in safeguarding sensitive data, infrastructure, and financial systems across sectors.

Looking ahead, the cybersecurity market is poised for continued expansion, with projections indicating a market size of $271.9 billion by 2029. This remarkable growth, averaging a compound annual growth rate (CAGR) of approximately 13%, is fueled by rising investments in advanced technologies such as artificial intelligence, cloud computing, and the Internet of Things (IoT). As the world becomes increasingly interconnected, the demand for robust cybersecurity frameworks will remain a cornerstone of business resilience, creating new opportunities for innovation and investment.

Key takeaways from chart

Historical Growth: Between 2016 and 2021, the cybersecurity market experienced steady growth, increasing from $83.32 billion to $139.9 billion, representing a significant rise of over 67% in just five years.
Acceleration Post-2020: The market showed rapid acceleration post-2020, growing by nearly $45 billion from 2020 to 2022, as organizations adapted to heightened cybersecurity needs during the COVID-19 pandemic and the shift to remote work.
Projected Growth: The market is expected to more than double between 2022 and 2029, from $150.2 billion to $271.9 billion, with a strong CAGR of approximately 13%, signaling sustained momentum in cybersecurity investment.
Key Drivers: Factors driving this growth include increased cyberattacks, stricter regulatory environments, and technological advancements like AI and machine learning.
Investment Implications: Private equity firms have an opportunity to capitalize on this expanding market by targeting innovative cybersecurity startups and established companies focused on endpoint security, threat intelligence, and cloud-based solutions.
Sectoral Impact: Industries such as finance, healthcare, and critical infrastructure will continue to dominate cybersecurity spending due to their heightened vulnerability to attacks and regulatory compliance requirements.
Global Focus: North America and Europe are expected to remain dominant markets, but the Asia-Pacific region is emerging as a growth hotspot due to its rapid digital transformation.

Private equity investments in Cybersecurity

Private equity and venture capital investments in the cybersecurity sector have followed a dynamic trajectory over recent years, reflecting both the sector’s growing importance and market fluctuations. The chart highlights a peak in investments in 2021, with a transaction value of $58.86 billion across 754 deals, underscoring a surge in interest fueled by heightened cybersecurity risks during the pandemic. However, the market saw a significant slowdown in 2023, as global economic uncertainties and tighter monetary policies curbed deal activity, with transaction value dropping to $10.92 billion and only 457 deals closed.

Despite this slowdown, the market is showing signs of a rebound in 2024, as reflected in the $8.51 billion transaction value across 132 deals in the first half of the year. This resurgence signals renewed confidence among private equity and venture capital investors, driven by emerging opportunities in advanced cybersecurity solutions and the increasing digital transformation of businesses globally. As the industry stabilizes, 2024 is shaping up to be a pivotal year for reinvigorated investment activity in this critical sector.

Key takeaways from chart

Peak in 2021:
- Transaction value reached $58.86 billion, marking the highest level of private equity and venture capital activity in cybersecurity.
- The year also saw a record 754 deals, highlighting strong investor appetite during the post-pandemic digital boom.
Market Slowdown in 2023:
- Investment value declined sharply to $10.92 billion, down by over 80% from 2021 levels.
- The number of deals fell to 457, reflecting reduced deal-making amid macroeconomic challenges.
Rebound in 2024:
- The first half of 2024 recorded $8.51 billion in transaction value, already nearing 2023’s total.
- The 132 deals in H1 2024 indicate growing momentum and the potential for a stronger second half.
Key Drivers of Recovery:
- Renewed focus on advanced technologies such as AI-driven cybersecurity and cloud-based solutions.
- Growing awareness of cyber risks amid increasing geopolitical tensions and regulatory pressures.
Opportunities for Private Equity:
- Private equity firms are likely to focus on mid-market deals and early-stage investments in innovative cybersecurity startups.
- Strategic consolidations may increase as firms aim to build scalable cybersecurity platforms.
Future Outlook:
- If the current trajectory continues, 2024 could surpass 2023 levels significantly, laying the groundwork for long-term growth in cybersecurity investments.

Geographical distribution

The geographic distribution of private equity and venture capital investments in cybersecurity during the first five months of 2024 reveals interesting trends in both deal activity and transaction value. While the United States and Canada led the pack in the number of deals with 72 transactions, Europe emerged as the clear leader in aggregate transaction value, totaling $5.34 billion—far surpassing any other region. This divergence highlights how larger, high-value deals in Europe are driving its dominance in terms of financial investment, even as North America remains a hub for deal volume.

Other regions such as Asia-Pacific and the Middle East, while smaller in scale, contributed meaningfully with 15 and 16 deals respectively. However, their aggregate transaction values remained significantly lower, underscoring a regional disparity in cybersecurity investment priorities and market dynamics. Latin America and the Caribbean saw minimal activity with only one deal recorded, reflecting the relative immaturity of the market in that region.

Europe’s Dominance in Value:

Aggregate transaction value in Europe reached $5.34 billion, more than double the $2.27 billion recorded in the US and Canada.
Europe’s high transaction value suggests a focus on large-scale investments, likely in mature cybersecurity companies or transformative technologies.

US and Canada Lead in Deals:

With 72 deals, the US and Canada far outpaced other regions in terms of deal activity, reflecting a vibrant ecosystem for smaller or mid-sized investments.
The lower aggregate value relative to Europe suggests that many of these deals were smaller in scale.

Asia-Pacific and Middle East Activity:

Asia-Pacific saw 15 deals, while the Middle East recorded 16, demonstrating growing interest in cybersecurity solutions in these regions.
However, the aggregate transaction values were modest, with $0.72 billion in the Middle East and an even smaller amount in Asia-Pacific.

Limited Activity in Latin America:

Only one deal was recorded in Latin America and the Caribbean, signaling either limited investor focus or a less mature cybersecurity market in the region.

Regional Trends:

Europe’s dominance in value indicates a trend toward consolidations or significant investments in established cybersecurity firms.
North America’s focus on volume showcases its dynamic startup ecosystem and early-stage investments.

Implications for Investors:

Investors looking for large, impactful deals may find Europe more attractive, while those seeking a higher volume of smaller investments may prioritize North America.

Largest transactions in 2024

The cybersecurity investment landscape in 2024 has already demonstrated robust activity, with private equity firms targeting strategic acquisitions and partnerships to strengthen their foothold in this critical sector. As reflected in the chart, key transactions from January to May 2024 include high-value deals like Thoma Bravo’s $5.2 billion investment in Darktrace and Haveti’s $322.6 million acquisition of Zerofox Holdings. These investments showcase a clear emphasis on large-scale and innovative cybersecurity solutions, reflecting the sector’s increasing maturity and value proposition.

This early activity in 2024 highlights a promising rebound for cybersecurity-focused investments, especially compared to the slowed pace in 2023. The range of transaction sizes, from mega-deals to smaller yet impactful investments like Bugcrowd’s $102 million funding, signals growing investor confidence and the continued prioritization of cybersecurity across diverse industries. Private equity players remain at the forefront of driving innovation and consolidation within the cybersecurity space, setting the stage for a strong year of investment activity.

Key takeaways from chart

Mega-Deals Drive Market:

Thoma Bravo’s $5.2 billion acquisition of Darktrace dominates the 2024 cybersecurity transaction landscape, reflecting a major vote of confidence in advanced AI-powered cybersecurity solutions.

Diverse Transaction Sizes:

Investments range from large-scale deals like Haveti’s $322.6 million investment in Zerofox Holdings to smaller but significant transactions such as Bugcrowd’s $102 million funding.

Focus on Innovation:

Targets like Cyera Ltd ($300 million) and ThreatLocker Inc ($115 million) highlight a focus on cutting-edge areas, including cloud-native security and endpoint protection.

Geographic and Sectoral Reach:

The inclusion of Beijing Tiandihexing Technology ($110.6 million) underscores the global nature of cybersecurity investments and the growing focus on emerging markets.

High-Profile Investors:

Leading private equity and venture capital firms like Thoma Bravo, Sequoia, and General Atlantic are actively participating, emphasizing their commitment to shaping the cybersecurity ecosystem.

Indicators of Recovery:

The breadth and scale of deals suggest a significant rebound in 2024, with sustained activity expected as the year progresses.

Consolidation Opportunities:

Strategic investments in diverse cybersecurity companies indicate a trend toward consolidating fragmented solutions into comprehensive platforms.

Cybersecurity Use in Private Equity Firms

Private equity (PE) firms manage an immense volume of sensitive financial, legal, and operational data, making them prime targets for sophisticated cyberattacks. In an environment where cyber threats are evolving rapidly, the stakes are high for PE firms that fail to adequately protect themselves. According to a recent study, only 23% of private equity firms currently have operational and compliant cybersecurity programs in place, leaving the majority exposed to significant risks.

While the industry has historically focused on investment opportunities within the cybersecurity sector, there is a growing realization that PE firms must also enhance their internal cybersecurity measures to safeguard proprietary data and portfolio companies. Cybersecurity is no longer just a defensive measure but also a strategic enabler for value creation, regulatory compliance, and operational efficiency. The following sections explore how PE firms can strengthen their cybersecurity frameworks and turn this often-overlooked domain into a competitive advantage.

The Growing Threat Landscape

Why PE Firms Are Attractive Targets:

High-value data: Financial records, transaction details, and sensitive portfolio company information.
Low defenses: Many firms lack mature cybersecurity frameworks, making them low-hanging fruit for cybercriminals.
Third-party risks: PE firms’ reliance on vendors, consultants, and IT systems introduces vulnerabilities.

Impact of Cyberattacks:

Financial loss: The cost of a data breach averages $4.45 million globally, with PE firms at risk of even higher losses due to reputational damage.
Regulatory penalties: Non-compliance with regulations such as GDPR and CCPA can result in fines exceeding tens of millions of dollars.
Operational disruption: Ransomware attacks on portfolio companies have led to extended downtimes, particularly in critical industries like manufacturing and healthcare.

Building a Robust Cybersecurity Program

1. Assessment and Planning

Conduct penetration testing to uncover vulnerabilities, but note that 1 in 5 firms fail to test their systems regularly.
Perform comprehensive cybersecurity assessments during pre-acquisition due diligence, identifying vulnerabilities that could impact the value or long-term viability of the target.
Utilize frameworks like NIST Cybersecurity Framework or CyberEssentials for structured implementation.

2. Strengthening Security Tools

Adopt cutting-edge tools such as:
- Endpoint Detection and Response (EDR): Monitors endpoint activities for real-time threat detection.
- Extended Detection and Response (XDR): Integrates data across the entire tech stack, enhancing visibility and response capabilities.
- Zero-trust architecture: Reduces unauthorized access by requiring authentication and verification for all network activity. Implementing zero-trust has been shown to reduce the cost of data breaches by 20.5%.

3. Identity and Access Management (IAM)

Use multifactor authentication (MFA) and single sign-on (SSO) to secure user access.
Regularly update IAM policies to grant the minimum required access, reducing potential misuse of credentials.

4. Leadership and Culture

Appoint a Chief Information Security Officer (CISO) who collaborates with the CTO to align security objectives with business strategies.
Foster a culture of cybersecurity awareness by investing in training programs, which have been shown to reduce phishing risks from 60% to 10% within 12 months.

Cybersecurity as a Value Creation Lever

1. Pre-Acquisition Cybersecurity Due Diligence

Identify vulnerabilities that could jeopardize the investment.
Use findings to negotiate better purchase prices or require sellers to address cybersecurity flaws pre-transaction.
Proactively enhance portfolio companies’ security posture within the first 100 days of acquisition.

2. Post-Acquisition Improvements

Transition legacy systems (e.g., on-premise email servers) to cloud-based solutions with robust security features.
Apply economies of scale by implementing shared licensing agreements or managed security services across portfolio companies.
Establish centralized Security Operations Centers (SOCs) for real-time threat monitoring and response.

3. Regulatory and Privacy Compliance

Ensure portfolio companies comply with regulations such as GDPR, CCPA, and SOX. Non-compliance can result in both fines and reputational damage.
Build privacy programs to address growing scrutiny around personal data protection.

Implementation Strategies for Long-Term Security

1. Operational Processes and Automation

Introduce time-limited access credentials to balance operational efficiency with security.
Automate tasks like account creation and password resets to prevent human errors and reduce insider threats.
On average, automated processes detect 40% more threats than manual methods.

2. Incident Preparedness

Develop an incident response playbook that includes defined roles, communication protocols, and backup strategies.
Conduct regular tabletop exercises to practice incident response and improve organizational readiness.

3. Continuous Monitoring

Use centralized log collection and analysis to audit data usage and track compliance in real-time.
Implement 24/7 monitoring through a unified SOC, providing seamless defense across all portfolio companies.

The rising tide of cyber threats demands that private equity firms shift from reactive to proactive cybersecurity measures. By integrating robust cybersecurity programs within their operations and portfolio companies, PE firms not only mitigate risks but also unlock new opportunities for value creation. From zero-trust policies to centralized SOCs, the tools and strategies are readily available—but the commitment must start at the leadership level.

Conclusion

The convergence of digital transformation and an increasingly complex threat landscape has elevated cybersecurity from a technical concern to a pivotal element of private equity strategy. As the cybersecurity market continues its robust growth trajectory, PE firms have a dual role to play: seizing investment opportunities in cutting-edge solutions while fortifying their own defenses to protect sensitive data and enhance operational resilience.

This report highlights the vast potential for innovation and value creation in the sector, from advanced AI-driven tools to integrated security platforms. By adopting proactive cybersecurity measures and embedding security into the fabric of their operations and portfolios, PE firms can not only mitigate risks but also unlock long-term growth, regulatory compliance, and investor trust. Cybersecurity is no longer optional; it is an indispensable enabler of success in the digital age.