News & Events

Cyber Acquisitions Favored in the Market

By Jon Yim

It may come as no surprise that cyber companies (cybersecurity, Big Data, and Cloud) saw strong M&A activity in the second half of 2012.  However, to examine the market’s cyber M&A sentiment from a different standpoint, an analysis was performed to determine if public acquirers of cyber companies experienced excess stock price returns during the three and five-day periods around deal announcements.  The results could shed some light on investors’ enthusiasm for cyber acquisitions, and perhaps indicate if cyber acquisitions are generally perceived to be accretive.

The results were very interesting.  On one hand, the unadjusted transaction set uniformly displays that acquirers, overall, received no excess returns for their cyber acquisitions (please see Figure A).

          Figure A: Unadjusted Results                            Figure B: Results Adjusted for Outliers

              

However, when only four outliers[1] are removed, the results show that public acquirers did achieve excess returns[2].  As Figure B demonstrates, acquirers experienced an average of 0.66% excess return during the three days surrounding the M&A announcement.  To compare, one studyfound that from 1984 to 2004, S&P 500 acquirers achieved an average three-day excess return of -1.21% (median was -0.83%)[3].

We believe the excess returns are due to a few key trends:

  • Organizations more deeply understand the ability of Big Data, Cloud, and cybersecurity technologies to deliver more decision insight, cost efficiencies, and comprehensive security
  • Organizations are becoming more data-centric; tools that analyze new sources of data, enable workforce mobility, and protect multiple network access points are in high demand
  • As organizations better understand and gear towards a data-centric environment, more spending is focused on these areas, and the market rewards companies that improve cyber capabilities

Given recent market reactions to cyber acquisitions, we anticipate more cyber M&A activity in 2013.

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Supplemental information about the analysis:

  • Data set included 54 transactions between June 1, 2012 and January 10, 2013 with publicly-traded acquirers listed on major U.S. exchanges
  • Stock returns were equally-weighted
  • Excess returnA = Actual returnA – [(2-yr average BetaA) x (Index return)]
  • Regression analyses were used to measure the statistical significance of results

[1] Outliers = transactions where acquirers’ stock returns exceeded +/- 6%

[2] Excess return was statistically significant

[3] “The Acquisition Performance of S&P 500  Firms”; March 2007