Please ensure Javascript is enabled for purposes of website accessibility

CyberArk Software Ltd. Soars on Rumors of Acquisition by Check Point Software Technologies Ltd.

By Timothy Green - Jan 13, 2016 at 12:39PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The deal is only a rumor, but consolidation in the security industry is inevitable.

What: Shares of security software provider CyberArk (CYBR 8.15%) soared on Wednesday following a report that Check Point (CHKP 2.94%) is engaged in talks to acquire the company. At noon Wednesday, the stock was up about 23%.

So what: This is just a rumor at the moment, and an analyst from Oppenheimer believes that the chances of a deal taking place are low. However, with Check Point having a market capitalization of just over $14 billion, as well as roughly $3.6 billion of cash and investments, compared to CyberArk's market capitalization of about $1.7 billion after today's rise in the stock price, the deal is very doable from a financial perspective.

It would be an expensive acquisition for Check Point, despite its ability to afford the deal. CyberArk generated $146 million of revenue and $23 million of net income over the past 12 months, putting the current stock price at about 11.6 times sales and 73 times earnings. CyberArk is growing fast, posting revenue growth of 56% in 2014, and its GAAP profitability is an exception rather than the rule in the cybersecurity software market, but this growth would need to continue for many years in order to justify the purchase price for Check Point.

Now what: Consolidation in the security market is bound to occur over the next few years, regardless of whether this particular deal ends up being a reality. Cisco Systems (CSCO 2.45%), which aims to grow its own security business, has acquired a slew of smaller security firms over the past few years, and the company will likely continue doing so for years to come. Cisco estimates that the average large enterprise has 54 separate security vendors, making for a complex and convoluted security landscape.

Any small security company is a potential acquisition target for Cisco or any other large provider of security software and services, and the number of companies scrambling for market share will likely be reduced in the coming years through mergers and acquisitions. While the Check Point-CyberArk deal is far from certain, CyberArk will remain an acquisition target regardless of whether this particular deal goes through.

Timothy Green owns shares of Cisco Systems. The Motley Fool owns shares of and recommends Check Point Software Technologies. The Motley Fool recommends Cisco Systems and CyberArk Software. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Cisco Systems, Inc. Stock Quote
Cisco Systems, Inc.
$46.02 (2.45%) $1.10
Check Point Software Technologies Ltd. Stock Quote
Check Point Software Technologies Ltd.
$122.50 (2.94%) $3.50
CyberArk Software Ltd. Stock Quote
CyberArk Software Ltd.
$149.74 (8.15%) $11.29

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/11/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.