AVGTF Avi Global Trust Plc (PK)

By Robert McMillan 

Czech antivirus-software maker Avast Software s.r.o agreed to pay $1.3 billion to acquire rival AVG Technologies NV, part of a wave of mergers in computer security.

The deal comes less than a month after antivirus pioneer Symantec Corp. agreed to pay $4.65 billion for cyberdefense vendor Blue Coat Systems Inc.

Industry players expect more deals, as larger players with established revenue streams look to build out their product lines to take on a new generation of cyberthreats.

"What you see happening here is you see a number of old-guard companies trying to find ways to consolidate and buy new technologies and get access to growth in new markets," said Matt Miller, a partner with venture-capital firm Sequoia Capital.

Companies are spending more for computer security, following a rash of data breaches in recent years. Research firm Gartner Inc. expects world-wide security spending to increase almost 10% this year, to $91.6 billion.

Historically, though, large security companies have struggled to develop breakthrough products, said Jeremiah Grossman, chief of security strategy with Sentinel One Inc., a three-year-old security startup that competes with Avast and Symantec.

Symantec's Blue Coat acquisition gave the antivirus company new cloud-computing capabilities, as did Cisco Systems Inc.'s 2015 acquisition of OpenDNS, valued at $635 million. Last month, the Financial Times reported that Intel Corp. is considering the sale of its Intel Security business, which produces McAfee antivirus software. Intel declined to comment on Thursday.

With the acquisition of Netherlands-based AVG, Avast gets more scale to compete with larger security companies such as Symantec.

"We are in a rapidly changing industry, and this acquisition gives us the breadth and technological depth to be the security provider of choice for our current and future customers," Vince Steckler, Avast's chief executive, said in a statement.

Avast agreed to pay $25 a share for AVG, in cash. The price represented a 33% premium over AVG's closing price on Wednesday.

Venture dollars flowing into cybersecurity startups more than tripled between 2011 and 2015, to $3.8 billion last year, according to data from CB Insights.

Mr. Miller and other investors believe that with corporate valuations cooling, the next months are likely to bring more acquisitions. "The big companies realize that the prices have somewhat come down, and it may be a good time for consolidation," he said.

Valuations of publicly traded security companies have dropped significantly over the past year, when measured as a multiple of their annual sales, said Brent Thill, an analyst with UBS Group AG. UBS tracks 11 cybersecurity companies, including Palo Alto Networks Inc., Fortinet Inc. and Check Point Software Technologies Inc. One year ago, these companies were trading on average at nine times their annual sales. As of June 30, that multiple had fallen to 4.6.

"The smaller companies say, 'If we were to go it alone our valuation would not be the same, and so their more open to the discussion as well, '" Mr. Miller said.

Joanne Chiu contributed to this article.

Write to Robert McMillan at Robert.Mcmillan@wsj.com

(END) Dow Jones Newswires

July 07, 2016 17:12 ET (21:12 GMT)

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