PANW's current strategy is "platformization" - to be a one-stop shop for anything cybersecurity. The CYBR acquisition fills large product holes in the current PANW portfolio, with little overlap.
The $25B price doesn't reflect a multiple on $1B, exactly. It represents potential sales of the CYBR product portfolio to current PANW customers, plus potential sales of the PANW portfolio to CYBR customers, at a multiple of ARR, negotiating a portion of which to current CYBR shareholders, which is above the market price for CYBR shares, representing the risk that such upsells may not succeed in practice.
Where the acquisition gets interesting is in what CYBR's identity products mean for PANW's portfolio, once integrated. SOAR gets to be much more deterministic if your SIEM knows all of the system's trusted principal identities instead of trying to piece it together based on network research, voluntary reports, and heuristics. In theory, an integrated product will deliver better security. But the question remains whether PANW will succeed at such integration or not. PANW has a long history of successful acquisitions, so, there's that...
Agree strongly that historical integrations were great. But cortex platformization of all the things has not been well received. But PANW is doubling down on it.
It's also curious because their firewall platform seems/feels totally separate from the rest of cortex still.
I will say, they do have a ton of coverage, more so than any other single vendor I can think of.
But the offerings are like “jack of all trades” and “master of none”.
These days software owners like AWS, GCP, Azure has there own superior security solutions embedded with in there stack instead of relying on external companies.
I think the same will happen for these AI based companies like OpenAI where they will release security solutions embedded within the model instead of relying on different external providers.
In one way these external providers bring in new security risk. Most of these companies offshore stuff. Like PAN offshores to India and Israel. This is an additional risk. Citizens of those countries have access US and EU data. Which no one seems to worry about.
Thats the reason, long run things are not looking good for these independent security providers. With the advent of AI, it is easy to embed security functions in their respective software stack.
Sure, Palo Alto can acquire Cyberark and then use its sales organization to up-sell its customers on CyberArk's offering.
I've seen this at Microsoft where acquiring startups that provide capabilities and then incorporating them into Azure or Defender led to the usage of those capabilities skyrocketing and those particular acquisitions (not going to specifics because NDA) ended up being profitable.
Even moreso when you take into account that CyberArk is not exactly a beloved product because it involves a lot of hassle. At 5-6B it may have been reasonable or simply a portfolio add that's cheap because of shared ownership/refinance but for 25B they could have bought Okta, which would have added much more value to their portfolio...
And this is the continued path to "enshittification" we're on through the continued growth forever. Companies aren't buying products, they're buying customers.
I worked for PAN back in the days where the sentiment, directly from Nir Zuk (founder), was: innovators dilemma. There's a relatively recent article [0] on the early days that does a nice job of laying out how that was a core tenant of how PAN operated. At the time I was there Mark McLaughlin was leading the charge as CEO and was the right person to drive PAN to $100M ARR.
But as you see the company shift after Mark you really start to see less of an engineering mindset of bringing new and disruptive technology to the landscape. Nikesh doesn't know how to do that. He's an ex-Googler and a finance background to boot. PAN is no longer disruptive in the technical sense. They're now disruptive to fresh ideas and good technology, which is bad for everyone.
I work now in a segment that competes with PAN in a small niche of their product set and I've displaced their points solution dozens of times in the last year. The product we're displacing is a product that PAN acquired in early 2019. The customers on that platform constantly complain about how the product has not evolved in years and support at PAN is horrendous. The last point, support, used to be a shining light for PAN. They had exceptional support - but, as with all things, scaling high quality is hard. It's why you won't find an In-N-Out too far off the Pacific coast. It's because of quality and their commitment to it. PAN is chasing stock prices and revenue, they aren't committed to their customers as they once were.
In-N-Out has a huge footprint in DFW btw. I agree with you on their commitment to quality but as I understand it their growth is slow because they don't take outside investment or loans and they need enough capital to open a regional footprint of stores because they do their own distribution.
> If Palo Alto Networks was going to do identity, they had to do it big.
> Commercially, there was no way they were going to build a successful identity business if they had just picked up a bunch of small companies and tried to put them together. They needed to bootstrap their entry into the market, so a scaled acquisition made sense.
> The identity market is at a completely different level of maturity compared to the situation when Palo Alto Networks built its cloud security business by stitching together smaller companies. That approach worked because the cloud security market was still forming. There essentially was no market leader to acquire.
> Identity has been through multiple generations of market leaders (Sun, IBM, CA, Oracle, and others. The market has already gone through multiple phases of disruption and M&A. For the most part, we've seen it all.
> Currently, we've landed with a handful of specialist identity players — some public, some owned by private equity firms. You know them: CyberArk, Okta, SailPoint, and Ping Identity. And then there's Microsoft. We'll get to that.
> Palo Alto Networks had zero chance of competing with those four companies (plus Microsoft and the other incumbents who still hold material market share) by building, buying, and partnering their way to a coherent identity offering.
> If there was one market where a massive deal had to be done, identity had to be it.
My read of that is basically they are buying a fast growing, big player in workforce identity that they can integrate in with their next generation security platform.
3. Most enterprises need Identity SPM which Cyberark does pretty well at.
4. Vendor Rationalization is the name of the game. Security teams want to reduce spend significantly in both headcount and tooling, so PANW aquiriring Cyberark makes it easier to defend identity, cloud, networking, and other security spend as well as displace competitors. This is why platformization is becoming so popular.
Same story with Cisco buying Splunk for $28 billion. Numbers makes not sense to pedestrians like me. But as always people on top think they know better (until they don't)
Sure, they know they can 2x to 5x the revenue of Cyberark with integration to their clients/offerings, maybe more. And build a stronger moat at the same time.
PANW's current strategy is "platformization" - to be a one-stop shop for anything cybersecurity. The CYBR acquisition fills large product holes in the current PANW portfolio, with little overlap.
The $25B price doesn't reflect a multiple on $1B, exactly. It represents potential sales of the CYBR product portfolio to current PANW customers, plus potential sales of the PANW portfolio to CYBR customers, at a multiple of ARR, negotiating a portion of which to current CYBR shareholders, which is above the market price for CYBR shares, representing the risk that such upsells may not succeed in practice.
Where the acquisition gets interesting is in what CYBR's identity products mean for PANW's portfolio, once integrated. SOAR gets to be much more deterministic if your SIEM knows all of the system's trusted principal identities instead of trying to piece it together based on network research, voluntary reports, and heuristics. In theory, an integrated product will deliver better security. But the question remains whether PANW will succeed at such integration or not. PANW has a long history of successful acquisitions, so, there's that...
Agree strongly that historical integrations were great. But cortex platformization of all the things has not been well received. But PANW is doubling down on it.
It's also curious because their firewall platform seems/feels totally separate from the rest of cortex still.
I will say, they do have a ton of coverage, more so than any other single vendor I can think of.
But the offerings are like “jack of all trades” and “master of none”.
These days software owners like AWS, GCP, Azure has there own superior security solutions embedded with in there stack instead of relying on external companies.
I think the same will happen for these AI based companies like OpenAI where they will release security solutions embedded within the model instead of relying on different external providers.
In one way these external providers bring in new security risk. Most of these companies offshore stuff. Like PAN offshores to India and Israel. This is an additional risk. Citizens of those countries have access US and EU data. Which no one seems to worry about.
Thats the reason, long run things are not looking good for these independent security providers. With the advent of AI, it is easy to embed security functions in their respective software stack.
Sure, Palo Alto can acquire Cyberark and then use its sales organization to up-sell its customers on CyberArk's offering.
I've seen this at Microsoft where acquiring startups that provide capabilities and then incorporating them into Azure or Defender led to the usage of those capabilities skyrocketing and those particular acquisitions (not going to specifics because NDA) ended up being profitable.
I would sort of naively imagine that that would work at a smaller price tag but at $25 billion it would be tough to make it pencil out.
Even moreso when you take into account that CyberArk is not exactly a beloved product because it involves a lot of hassle. At 5-6B it may have been reasonable or simply a portfolio add that's cheap because of shared ownership/refinance but for 25B they could have bought Okta, which would have added much more value to their portfolio...
I'm not buying a revenue synergies argument. Has to be more.
1. These synergies are hard to deliver, let alone 25x.
2. Paying 25x revenue implies you're forecasting way more (+30x?) in value.
The Silicon Valley playbook for the last few decades has just been to acquire monopolies and then exploit them.
That’s illegal of course but we stopped enforcing those laws somewhere in the early 2000s so here we are.
And this is the continued path to "enshittification" we're on through the continued growth forever. Companies aren't buying products, they're buying customers.
I worked for PAN back in the days where the sentiment, directly from Nir Zuk (founder), was: innovators dilemma. There's a relatively recent article [0] on the early days that does a nice job of laying out how that was a core tenant of how PAN operated. At the time I was there Mark McLaughlin was leading the charge as CEO and was the right person to drive PAN to $100M ARR.
But as you see the company shift after Mark you really start to see less of an engineering mindset of bringing new and disruptive technology to the landscape. Nikesh doesn't know how to do that. He's an ex-Googler and a finance background to boot. PAN is no longer disruptive in the technical sense. They're now disruptive to fresh ideas and good technology, which is bad for everyone.
I work now in a segment that competes with PAN in a small niche of their product set and I've displaced their points solution dozens of times in the last year. The product we're displacing is a product that PAN acquired in early 2019. The customers on that platform constantly complain about how the product has not evolved in years and support at PAN is horrendous. The last point, support, used to be a shining light for PAN. They had exceptional support - but, as with all things, scaling high quality is hard. It's why you won't find an In-N-Out too far off the Pacific coast. It's because of quality and their commitment to it. PAN is chasing stock prices and revenue, they aren't committed to their customers as they once were.
[0] https://94040.substack.com/p/disruption-in-the-firewall-the-...
In-N-Out has a huge footprint in DFW btw. I agree with you on their commitment to quality but as I understand it their growth is slow because they don't take outside investment or loans and they need enough capital to open a regional footprint of stores because they do their own distribution.
I like this article about the acquisition (disclosure, I know the author).
https://strategyofsecurity.com/p/the-case-for-and-against-pa...
From the article:
> If Palo Alto Networks was going to do identity, they had to do it big.
> Commercially, there was no way they were going to build a successful identity business if they had just picked up a bunch of small companies and tried to put them together. They needed to bootstrap their entry into the market, so a scaled acquisition made sense.
> The identity market is at a completely different level of maturity compared to the situation when Palo Alto Networks built its cloud security business by stitching together smaller companies. That approach worked because the cloud security market was still forming. There essentially was no market leader to acquire.
> Identity has been through multiple generations of market leaders (Sun, IBM, CA, Oracle, and others. The market has already gone through multiple phases of disruption and M&A. For the most part, we've seen it all.
> Currently, we've landed with a handful of specialist identity players — some public, some owned by private equity firms. You know them: CyberArk, Okta, SailPoint, and Ping Identity. And then there's Microsoft. We'll get to that.
> Palo Alto Networks had zero chance of competing with those four companies (plus Microsoft and the other incumbents who still hold material market share) by building, buying, and partnering their way to a coherent identity offering.
> If there was one market where a massive deal had to be done, identity had to be it.
My read of that is basically they are buying a fast growing, big player in workforce identity that they can integrate in with their next generation security platform.
Gotta be honest, after using their products extensively compared to other offerings I don’t know if stitching together cloud companies “worked”.
Well, you have expertise on the ground, so I'd take your word for it.
We currently use both vendors.
If anything, this might make us stick with PA longer as they are the "niche" in our environment and presumably we will want to combine the contracts.
1. Similar multiples to the Wiz acquisition
2. Large shared customer base,
3. Most enterprises need Identity SPM which Cyberark does pretty well at.
4. Vendor Rationalization is the name of the game. Security teams want to reduce spend significantly in both headcount and tooling, so PANW aquiriring Cyberark makes it easier to defend identity, cloud, networking, and other security spend as well as displace competitors. This is why platformization is becoming so popular.
Same story with Cisco buying Splunk for $28 billion. Numbers makes not sense to pedestrians like me. But as always people on top think they know better (until they don't)
Sure, they know they can 2x to 5x the revenue of Cyberark with integration to their clients/offerings, maybe more. And build a stronger moat at the same time.
It’s not their job to maximise cyberArk shareholders value.
There are plenty of Palo Alto customers who also use CyberArk. Perhaps the Palo Alto leadership believe vertical integration is very valuable?
Cyberark put AI into every slide in their investor deck