Inside the rise of cyber-security IPOs

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It’s starting to look more and more like cyber-security is one of the hottest areas of investment in the IT world. With many critical data breaches still fresh in recent memory, investors are starting to look for long-term solutions. Now, they might be interested to hear that several cyber security firms are considering launching an IPO sometime this year.

Rapid7, Log Rhythm and Mimecast are just a few of the companies looking to go public, and it seems like a wise decision. The growth in cyber-security firms has outpaced the market over recent years with companies like FireEye and Qualys increasing their share values by 38 percent and 24 percent respectively, when the S&P Index has only increased by 1.9 percent.

Rapid7 has also already enlisted the help of Morgan Stanley and Barclays to assist in their IPO release, and it’s seeking a $1 billion valuation. Log Rhythm has JPMorgan Chase and Morgan Stanley helping with its IPO. Mimecast, who does not have anyone helping with its IPO yet, saw its revenue grow 30 per cent in 2014 to $88.1 million. None of these firms have made any official comment on their plans, however. Veracode and Bit9+Carbon Black are said to also be looking into going public.

One need not look far to find examples of crippling cyber-attacks. Target and Sony Pictures Entertainment provide some of the most stunning examples in recent memory.

In 2013, Target issued network credentials to one of its heating, air conditioning, and refrigeration suppliers. That supplier was then the target of a malicious attack using email malware. Two month later, hackers got into Target’s payment card readers and extracted credit card information for 40 million customers. In January 2014, the retailer announced that the contact information of 70 million customers had also been accessed by cybercriminals. Some of those affected by this second breach were also affected by the first.

Sony was the target of a devastating attack in November 2014 that nearly ruined the company and put its 6,800 employees and 40,000 others at high risk of identity theft. A hacker group called the Guardians of Peace threatened to release confidential company information onto the internet if its demands were not met. Two days later scores of company information such as marketing plans, social insurance numbers, scanned passports, unpublished scripts, and four unreleased movies were put online.

There’s no question that large enterprises need to shore up their cyber security, but for investors the sector is not without risk. Take FireEye, for example. Its share value increased fourfold since releasing its IPO, but it ran a net loss of $444 million last year and is not expected to generate profits until 2018. Its current share value of $42.88 on NASDAQ is still low when compared to its all time high of $97.35 in March 2014.

But Venky Ganesan, managing director at Silicon Valley-based venture capital firm Menlo Ventures told Recode that corporate spending on cyber security is on the rise. It currently sits at 0.25 per cent of revenue, but could hit as high as 2 per cent in the coming years.

Savvy investors might want to consider investing in one the IPOs coming out later this year and get in first on what could be a lucrative business venture.

 For more cyber-security feature stories, read this profile of Israeli cyber-security firm Cytegic

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