Latest / Bull Market Conversations with Fexingo: Rallies, Momentum, and Riding Market Strength / How Bull Markets Are Making Cybersecurity M&A Irresistible
Transcript
- Lucas: CrowdStrike's down about three and a half percent over the past five days. Not a crash by any stretch, but interesting timing — because the bull market is making cybersecurity companies some of the most attractive acquisition targets we've seen in years. Luna: I noticed that too. CrowdStrike's been a high-beta name, so a pullback isn't shocking. But you think this is more about M&A math than earnings fears? Lucas: Exactly. When the S&P 500 is at 7,515 and liquidity is ample, big tech and traditional enterprise players start shopping. Cybersecurity firms have sticky revenue, high margins once they scale, and a massive addressable market. The cost of building your own endpoint detection or cloud security platform in-house is astronomical. So you buy. Luna: Yeah, that makes sense. And it's a pattern we've seen before — Cisco bought Splunk for 28 billion last year, and that deal looks prescient now. Lucas: Right. That deal set a benchmark. Now you have Palo Alto Networks, SentinelOne, and even legacy names like Trend Micro all getting looks. The bull market provides cheap capital and high stock prices, so acquirers can use equity as currency. And targets are more willing to sell when their own stock is up. Luna: But there's a flip side — if you're an activist investor, you might push a company to stay independent and ride the momentum. We've seen that in software more broadly. Lucas: That's a real tension. Look at SentinelOne — it's been a rumored target for a while, but its stock has run up so much that activists argue it's worth more alone. The bull market can create valuation bubbles that scare off buyers. But I'd argue the bigger force here is strategic necessity. Luna: Let's talk numbers — what kind of multiples are we seeing in these deals? Lucas: Revenue multiples for cybersecurity targets are ranging from 8 to 12 times forward revenue. That's rich compared to historical averages of 5 to 7, but it's not crazy in the context of the broader growth stock rally. And with the 10-year Treasury at around 4.2 percent, the cost of financing is manageable. Luna: So you're saying the bull market is making M&A deals pencil out more easily. Lower cost of capital plus high stock prices — it's a sweet spot. Lucas: Precisely. And it's not just the mega-cap acquirers. Mid-cap tech firms are also consolidating. For example, a company like Zscaler could be a target for a larger cloud player. The bull market broadens the buyer pool. Luna: Speaking of which — these conversations you and I have every day, they're exactly why listener support matters. If you find our breakdowns useful, you can help keep the show ad-free at buy me a coffee dot com slash fexingo. We'll keep bringing you these angles without interruption. Lucas: Absolutely. CrowdStrike's dip is a perfect entry point for this discussion. The company itself has been rumored as a potential acquisition target for years. But its market cap is now over 50 billion — that limits the pool of buyers to the very largest tech firms. Luna: Right, so the bull market creates a paradox: high valuations make sellers happy, but they also shrink the buyer pool. Who can realistically buy CrowdStrike at today's prices? Lucas: Microsoft could. Amazon could. Google, maybe. But they'd face antitrust scrutiny. So the most likely M&A action is further down the market cap ladder — companies with strong products but smaller scale. Luna: Let's look at a specific example. What about a company like Rapid7? It's in the 3 billion range, growing at 15 percent, profitable — seems like a classic target. Lucas: Great call. Rapid7 has a solid vulnerability management platform. If a larger player like Palo Alto Networks wants to fill a gap, Rapid7 fits. And at current multiples, the deal math works. The bull market gives Palo Alto a high stock price to use as currency, and Rapid7 shareholders get a premium. Luna: What about the regulatory angle? The FTC has been more aggressive on tech M&A. Could that chill the deal flow? Lucas: It's a factor, but cybersecurity is actually a sector where regulators are less likely to block deals because of national security arguments. The government wants strong, consolidated cybersecurity providers. That's a tailwind. Luna: Interesting. So the bull market creates the financial conditions, and the geopolitical environment creates the strategic urgency. That's a powerful combo. Lucas: Exactly. And we're seeing it in the data. Global cybersecurity M&A volume in the first half of 2026 is up roughly 25 percent year over year. The average deal size is also increasing. Luna: Which subsectors are hottest? Endpoint security, cloud security, identity? Lucas: All three. But identity and access management is particularly hot — think Okta, Ping Identity. Every company needs identity solutions, and the leaders are growing fast. Okta's revenue growth has stabilized around 20 percent, and its stock has rallied. That makes it a target, but also expensive. Luna: So the bull market is a double-edged sword for acquirers — they can use equity, but they're paying high prices. For sellers, it's a great time to exit. Lucas: Right. And that's why you're seeing more companies go public with the intention of being acquired. It's called a 'dual-track' process — file for an IPO but also run a sale process. The bull market makes both options viable. Luna: Give me an example of a recent cybersecurity IPO that might fit that mold. Lucas: Look at Rubrik. It went public in 2024, but its cloud data security business is exactly what larger players need. Its stock has performed well, but the chatter about a potential acquisition hasn't died down. Luna: So for investors, the play might be to buy these mid-cap cybersecurity names ahead of potential deals. But that's speculative. Lucas: It is. I'd rather focus on the fundamental trends: cybersecurity spending is non-discretionary, and the bull market amplifies the M&A cycle. If you own a diversified basket of cybersecurity ETFs, you benefit from both organic growth and deal premiums. Luna: ETFs like HACK or CIBR have been steady. I checked CIBR's top holdings — Palo Alto, CrowdStrike, Fortinet — all names we've discussed. Lucas: Exactly. And those funds have returned around 15 percent year to date, in line with the NASDAQ. But the M&A angle adds a potential upside catalyst that broad market ETFs don't have. Luna: Let's bring it back to CrowdStrike. Is the 3.4 percent dip a buying opportunity, or a warning sign? Lucas: I think it's more noise than signal. CrowdStrike reported strong earnings last quarter, and its guidance was solid. The dip could be profit-taking or rotation out of high-beta names into value. In the context of the bull market, I'd view it as a minor pullback in a long-term growth story. Luna: But if an acquisition offer came in, that would change the calculus entirely. What premium would it take? Lucas: Given its size, a 30 to 40 percent premium would be typical. That would value CrowdStrike at around 70 to 75 billion. Few companies can write that check. Microsoft could, but it would face integration challenges. Amazon could, but it has its own security offerings. Luna: So the most likely acquirers for the big names are the hyperscalers. For the mid-caps, it's the enterprise security platforms. Lucas: Exactly. And that's where the real action is. Companies like Palo Alto Networks have a clear M&A strategy. They've done over a dozen deals in the last five years. The bull market gives them the financial firepower to keep going. Luna: Final thought — for listeners, what's the key takeaway from this episode? Lucas: The bull market is reshaping cybersecurity not just through higher stock prices, but through a wave of strategic M&A that's likely to accelerate. If you're invested in this space, pay attention to who might buy whom — it could be the biggest catalyst you're not pricing in. Luna: Great note to end on. Thanks, Lucas.