CyberArk IPO Gets Boost as Breaches Trigger Industry Gain

The data breaches that have rocked corporate America in recent weeks couldn’t have come at a better time for CyberArk Software Ltd.

The Israeli data security company, which is seeking to raise as much as $80 million in an initial public offering in the U.S., is marketing its shares to investors this week after a rash of attacks on companies from Apple Inc. to JPMorgan Chase & Co. spurred a rally in cyber-security company shares. The shares are set to price Sept. 23, at a range of $13-$15, valuing the company at as much as $443.7 million, according to data compiled by Bloomberg.

Firms like Check Point Software Technologies Ltd. and Palo Alto Networks Inc. have surged as much as 23 percent in the past month as the attacks fueled bets that spending on information security will increase. CyberArk, which monitors data use by holders of privileged accounts, is coming to market at a moment when corporate security needs are outstripping industry capacity, said Daniel Ives, an analyst at FBR Capital Markets.

“The cyber-security market is one of the hottest areas in technology now,” Ives said by phone from New York on Sept. 11. “It’s been a fertile spending environment, and there’s only a handful of companies that have the technology to differentiate themselves in this market.”

Check Point, the world’s second-largest network security company, has jumped 9.3 percent this year, while Palo Alto Networks, which focuses on sophisticated cyber-threats, has surged 70 percent. The Bloomberg Israel-U.S. Equity Index climbed 12 percent in the period, while the Tel Aviv 25 Index advanced 7 percent through Sept. 15. The TA-25 was little changed at 1,423 today.

IPO Underwriters

JPMorgan, Deutsche Bank AG, and Barclays Plc are underwriting the CyberArk IPO.

CyberArk, which counts global companies including Barclays and Pfizer Inc. among its clients, declined to comment on the IPO, citing a regulatory quiet period. Brian Marchiony, a spokesman for JPMorgan in New York, and Mark Lane of Barclays also declined to comment.

JPMorgan, which vowed earlier this year to spend a quarter-billion dollars on cyber-security annually, has rushed to determine the scope of a network assault that was reported on Aug. 27 and restore confidence in security at the biggest U.S. lender.

Corporate spending on advanced security threats will grow at a 42 percent compound annual rate to $1.4 billion by 2018, adding to a $34 billion security market worldwide, according to Bloomberg Intelligence data.

The growth of cloud computing, which lets companies store, process, and deliver computing data via the Internet, and the migration of data from desktop computers to mobile phones has intensified the need for companies to upgrade data security, according to Ives.

Sales Bottleneck

Based in Petach-Tikva, Israel, CyberArk focuses on security threats inside a company’s network by monitoring privileged accounts of employees connecting to the network.

Small data security companies that rely on resellers to distribute their products may not be able to fully take advantage of the boom in demand because of bottlenecks in their sales channels, said Andrew Nowinski, an analyst with Piper Jaffray Cos. in Minneapolis.

Security resellers are “having a lot of difficulty finding high-quality security engineers and talent,” Nowinski said by phone Sept. 12. “There could be some other issues down the road with some of these smaller startup companies, just because they can’t find talent quick enough to keep up with demand,” he said, referring to the resellers.

‘Exploding Demand’

Shares of Imperva Inc., which builds security systems for data centers, plunged to a 20-month low in April after the company scaled back first-quarter revenue growth to a third of its previous forecast, citing sales execution challenges. The company appointed a new chief executive officer in August.

More companies are likely to follow CyberArk to the IPO market, said David Cowan, a partner at Bessemer Venture Partners in Menlo Park, California. Cyber-security is going through a “boom and bust” cycle in the venture capital community which is provoking “too many entrants,” he said.

“The exploding demand is real, and many of these companies will be successful, but most of them won’t,” Cowan said by phone Sept. 12. The ones that do succeed “will either become acquirers or be acquired.”

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