Expanding Threat Landscape, Artificial Intelligence Opportunities Drive Cybersecurity Market Deal Activity
Global Cybersecurity merger and acquisition (M&A) volume has continued a downward trend that began in 2023, falling 10.9% year-over-year (YOY) to 237 transactions announced or completed year to date (YTD).
Despite this consistent drop in deal flow, sector M&A activity has continued to outpace pre-pandemic levels. Of note, YTD 2019 registered just 173 transactions. Dealmaking within the Cybersecurity sector is expected to improve if headwinds, both foreign (trade wars) and domestic (government budget cuts), dissipate. M&A multiples in the Cybersecurity sector have held strong, averaging 10.9x EV/EBITDA in YTD 2025 compared to 10.4x EV/EBITDA in the prior year period.
The average sector revenue multiple has declined by more than two turns YOY to 2.3x EV/Revenue YTD. However, this average includes both software and services targets, with services businesses typically drawing lower revenue multiples. When isolated, revenue purchase multiples for software providers have averaged a robust 6.3x in YTD 2025.
Strategic buyers have maintained a majority hold on sector M&A to date, albeit with continual YOY decreases in market share. The percentage of strategic deals has dipped below 60% for the first time since 2018, dropping to 58.6% in YTD 2025. Large strategic buyers have continued to pursue M&A to expand the capabilities of their portfolios.
Strategic acquirers have faced increased competition from sponsors attracted to strong recurring revenue streams within the mission-critical Cybersecurity sector. While the percentage of platform deals has remained relatively constant (~9% annually), add-on transaction composition has nearly doubled from 16.9% in 2019 to 32.1% in YTD 2025. Operational synergies are easily obtainable across portfolio companies, driving demand for these add-on deals.
Private equity (PE) buyers will likely comprise an increasing share of the Cybersecurity M&A market as platforms continue rolling-up accretive and synergistic businesses, particularly if interest rate cuts materialize and acquisition financing costs ease.
Public Equity Market Reflects Demand for Intelligent Security
The rapid advancement in artificial intelligence (AI) over recent years has served as a two-fold source of growth for cybersecurity vendors. AI integrations within product portfolios have significantly enhanced the capabilities of cybersecurity solutions, while the proliferation of AI and depth of data contained within large language models (LLMs) has exponentially increased the potential attack surface for threat actors seeking to do harm. The arms race among public strategics to address both of these factors has introduced a substantial opportunity for AI-focused technology startups to attract the attention-and expansive coffers-of massive technology conglomerates seeking to compete through either partnerships, investments, or acquisitions.
"Cybersecurity operations are in the midst of transformation through automation and the use of AI. The processing of large amounts of data to identify, track, and remediate real and potential threats is a perfect application for new technologies. From an investor perspective, this represents the opportunity for rapid growth, tremendous operating leverage, and recurring revenue streams."
Tom McConnell
Managing Director, Capstone Partners – IMAP USA
Each of the 23 companies held in the HACK ETF have introduced either AI-powered threat detection and remote monitoring solutions (e.g., Cisco AI Defense, General Dynamics (NYSE:GD) Information Technology AI, Palo Alto Precision AI) or generative AI companions to enhance the capabilities of existing products (e.g., CrowdStrike Charlotte AI, Rubrik Ruby, Trend Micro Trend Companion).
Quantum Computing Drives Cybersecurity Services Arms Race
Cybercrime has reached new heights in 2025, with the cumulative global cost of cyberattacks expected to cross the USD 10 trillion mark for the first time, according to Cybercrime Magazine. Cybercrime could soon worsen if threat actors gain access to new quantum computing tools, potentially exacerbating costs that are already projected to increase at a 15% compound annual growth rate (CAGR) from 2021 through 2025.
Quantum computing, a technology that leverages physics-based algorithms to deliver powerful computations beyond traditional methods, has seen exponential growth in capabilities since its first proof-of-concept in 1994, according to the Massachusetts Institute of Technology (MIT). While standard encryption formats have proved effective against current threats, the potential for a cryptographically-relevant quantum computer (CRQC) capable of running algorithms that rapidly solve classical encryption methods has become a serious risk to public and private sector organizations.
Quantum resistance has emerged as a key IT and homeland security priority of government bodies, with the Office of Management and Budget (OMB) ordering government entities to identify any cryptographically-vulnerable assets, according to a November 2022 directive from the agency.
A fault-tolerant quantum computer will likely not be available until at least 2035, according to a survey of both industry and academic sources conducted by McKinsey. Despite this decade-long horizon, quantum computing could provide both near-term opportunities and challenges for cybersecurity vendors. The global market for Quantum Cryptography is expected to grow at a 36.8% CAGR from 2024 through 2030, reaching USD 7.6 billion, according to Marketsandmarkets.
An exponentially rising threat landscape will likely drive significant demand for cybersecurity solutions, including quantum-resistant infrastructure implementation services from IT consultants. While quantum computing can be leveraged by threat actors to exploit vulnerabilities, the technology can also be used to bolster data security in a manner similar to how AI has been used in this sector, offering additional opportunities for cybersecurity development. However, failure to keep pace with the rapidly-evolving Quantum Computing environment may significantly disrupt the current competitive landscape within the Cybersecurity sector, introducing both opportunities for new entrants with groundbreaking solutions as well as threats to currently dominant providers.
The above is an excerpt from Capstone Partners – IMAP USA’s’ Cybersecurity M&A Coverage Report. For over 20 years, Capstone Partners has been a trusted advisor to leading middle market companies, offering a fully integrated range of investment banking and financial advisory services uniquely tailored to help owners, investors, and creditors through each stage of the company's lifecycle. For more information, visit www.capstonepartners.com.
