F5 Networks FFIV recently signed an agreement to acquire security company Shape Security for $1 billion in cash. The deal is expected to close by first-quarter 2020.
F5 Networks will close the transaction with cash available in its balance sheet and $400 million in a Senior Unsecured Term Loan A. As of Sep 30, the company had $972.3 million in cash and cash equivalents, and $523.3 million as long-term liabilities.
The acquisition expedites F5 Networks’ product and total revenue growth, and accelerates its transition to a software- and SaaS-driven business model. The deal is also expected to significantly increase the company’s software subscription mix in fiscal 2020.
Moreover, the company expects to achieve break-even non-GAAP earnings per share within 24 months of closing the transaction and also expects it to contribute to free cash flow per share within 12 months.
F5 Networks, Inc. Revenue (TTM)
F5 Networks, Inc. revenue-ttm | F5 Networks, Inc. Quote
How F5 Networks Stands to Benefit
This marks the largest deal for F5 Networks, and will more than double its total addressable market in the security space. Shape’s clientele includes the largest banks, airlines, retailers, and government agencies, which leverage the company’s sophisticated bot, fraud and abuse defense.
The integration of Shape will complement F5 Networks’ cloud security capabilities with its fraud and abuse prevention features.
Importantly, F5 Networks can now take advantage of Shape’s AI and ML-based advanced platform, supported by powerful cloud-based analytics, to prevent attacks that bypass other security and fraud controls.
The acquisition will also help F5 Networks to save billions of dollars from fraud, reputational damage and disruptions to critical online services by bolstering its application security capabilities.
Per a one-time 2014 Gartner research, just a minute of system downtime can cost a company about $5,600 on an average. However, depending upon the size an organization, the real cost of computer downtime can range between $140,000 and $540,000 per hour. This highlights the importance of tight application security for running a business smoothly.
Acquisitions: A Key Growth Strategy
Increasing incidences of high-profile data breaches in recent years have led global businesses to up the ante on cybersecurity. With numerous cybersecurity companies competing for a share of the pie, consolidation is inevitable. Notably, each of the integrated companies specializes in a particular domain of cybersecurity.
Per a Momentum Cyber study, in 2019, 16 M&A transactions valued at $12.9 billion were closed.
Security behemoths like Fortinet FTNT, Check Point CHKP and Palo Alto PANW made strong acquisitions throughout 2019.
F5 Networks, too, has resorted to acquisitions to boost its network security capabilities and tap the market. The buyouts have helped the company enhance security capabilities, increasing the market share.
Shape is the second acquisition made by F5 Networks in 2019, following the buyout of NGINX, which contributed a little more than $8 million to revenues in the fourth quarter of fiscal 2019.
F5 Networks currently carries a Zacks rank of #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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