Contact: Scott Denne
Imperva leverages its expensive stock to make its first major acquisition, picking up Skyfence Networks for $60m, consisting of just $2.8m in cash. Public markets value Imperva at 10x trailing revenue and its stock has more than doubled since its IPO in late 2011, outpacing the growth in its sales over that time. The deal is reminiscent of FireEye’s purchase in January of Mandiant. At $1bn, that transaction was far larger, though it was also about 90% stock and made possible by FireEye’s eye-popping valuation: 62.6x trailing revenue.
Imperva holds enough cash that it could have done the deal without a rich stock price, though it’s unlikely it would have. The purchase is small, though it is still more than 8x the free cash flow Imperva generated last year. Skyfence didn’t post any revenue and with Tomium Software’s mainframe security assets (the other acquisition Imperva has announced), Imperva will add $11m in operating expenses this year.
What Imperva is getting is a product that pads its strong position in the Web application firewall market. According to surveys by TheInfoPro , a service of 451 Research, Imperva is the second most implemented vendor in the space (behind F5), with 32% of customers reporting they intend to spend more on those products in 2014, up from just 24% in 2013.
The transaction marks the first entry of an established security player into the cloud application control market, something we expect to see more of this year as there’s no shortage of emerging companies in this space and it’s complementary with next-generation firewalls (a case we laid out in our ‘2014 M&A Outlook – Enterprise Security’). With the rich multiples that public and private security vendors command these days, lots of stock could trade hands.
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