SPACInsider contributors Anthony Sozzi and Sam Beattie this week compiled their three favorite potential SPAC targets among companies in in the security sector. We look at why they are compelling and why each could be a fit for a blank-check merger.
SPAC-watchers by now may have thought they had seen everything. But this week brought yet something more new in the form of the rumored $20 billion three-SPAC transaction to take security firm Allied Universal (AU) public. How such an unprecedented deal structure would work remains to be seen, but what’s not crazy is the sector it would target – security.
The security market is expected to grow at a CAGR of 10.3% through to 2025. This owes to the fact that the workforce-heavy physical security portion of the business is set to see heavy disruption by automation, AI-detection and advanced monitoring technology. Meanwhile, the needs for securing the ever-expanding virtual space are set to see the cybersecurity market grow even faster at a CAGR of 11.6% through to 2030, having already accounted for $183.3 billion in 2020.
Worker-shortages aside, security generally is something of a recession-proof business and may be in increasing demand more broadly as storefronts report what they see as a rise in retail theft overall.
Should the Cerberus-like deal for AU go through, GardaWorld would be the next likely place to look to copy the trend. It is a competitor with AU in most categories and, like AU, it has been aggressively investing in the changing higher-tech side of the business.
AU’s big move into tech involves its partnership with autonomous security robot-maker Knightscope. GardaWorld meanwhile this month launched Sesami, a subsidiary that will house much of the tech side of its cash management services.
This includes automated cash processing, business intelligence and other smart devices to digitize cash handling and reduce security risks. This division has already bolted on two companies to bolster offerings and it is already expected to generate about $1 billion in revenue on its own.
GardaWorld’s physical security offerings also haven’t shied away from difficult jobs. It has about 1,000 personnel guarding embassies abroad, including in restive places like Iraq, Yemen and Libya. This level of contracts are typically lucrative given the risks involved and the defense procurement processes they run through. The wider group also generates risk-management analytics that track everything from viral spreads to weather impacts.
Like AU, it also last had a major liquidity event in 2019 when AU reportedly sold a 40% stake and GardaWorld a 51% stake, in their case to BC Partners. GardaWorld’s management actually increased their stake in the company through this transaction, as they joined with BC Partners to buy out the Rhône Group’s 61% stake at more than double the valuation that Rhône paid for It in 2016.
Nonetheless, the company has refinanced its debt four times since the 2019 deal and it appears that all sides could benefit from a SPAC deal involving a cash infusion for the company and an exit opportunity for others.
These days, a company’s data is as much or more valuable than any of its physical assets and as mentioned above, companies are pouring money into services that will keep anyone from walking away with it.
Druva lives in the AWS cloud with tools specifically designed to guard against ransomware attacks and providing isolated backups that are “air-gapped” and therefore are inaccessible by hackers. This allows companies to have a carbon copy of their systems essentially locked in a safe that can be accessed or plugged in to replace a compromised system whenever needed.
It currently has about 200 petabytes (200,000,000 gigabytes) of client data under management in this way and to the extent that companies are already protecting data, Druva claims it can do it more efficiently. Clients like safety trainer RelyOn Nutec, which need data secure and accessible in remote areas, claim Druva has reduced their data spend by 62x. Meanwhile more everyday businesses like Northgate Markets, which is a single large-scale grocery store in California claims cost savings of about 60%.
Druva achieved a $2 billion valuation with its $147 million capital raise in April 2021. This was the second capital raise that Druva had seen with the participation of Neuberger Berman. It has been a prolific PIPE investor with 12 such investments in SPACs since January 2021, as you can see in our new PIPE investors tab. It also still has a searching SPAC in CC Neuberger Principal Holdings III (NYSE:PRPC) with an estimated $402.5 million in trust.
Identity theft is another area where much of the security conversation surrounding it is centered on individual consumers, but companies – especially banks – have much on the line in this area as well.
In 2020, financial institutions faced $10.6 billion in fines for know-your-customer (KYC) compliance failures as a part of anti-money laundering regulations and the US stepped up enforcement with 48% more fines issued in 2020 than the year before, according to Prove.
It instead has produced a token-based system to keep identities of customers and employees under continuous management. About 1,000 companies and 500 banks use Prove for its onboarding, payments and digital servicing approaches to client interactions.
Its tools are not only used by traditional financial institutions, however. The US branch of cryptocurrency exchange Binance also uses Prove to better secure its traffic, which can at times be murkier than mainstream dealings.
Prove has not raised outside capital since it pulled in $100 million in a June 2020 Series H. At that time, it was valued at $549 million, but it has likely grown that valuation expectation alongside the surging demand in the space.
NightDragon (NASDAQ:NDAC) would appear to be a good fit to accelerate Prove. Its CEO Morgan Kyauk previously worked to take FireEye public, which later became the $4.2 billion cybersecurity group Mandiant (NASDAQ:MNDT) after a series of mergers.
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