Intel, FireEye and Others Should Be Pleased With Avast/AVG Deal

Much like the tech IPO market, the tech M&A scene is heating up following a very slow start to the year. And security tech companies, a group many have argued is ripe for consolidation, are shaping up to be the largest beneficiaries.

Three weeks ago, Symantec announced it's buying security hardware/software firm Blue Coat Systems for $4.65 billion, a price equal to 6.2x Blue Coat's trailing sales and far above the $2.4 billion private equity firm Bain paid for the company only a year earlier. A couple weeks later, Cisco announced it's buying CloudLock, a provider of software for securing cloud apps, for $293 million.

On Thursday, Czech antivirus software firm Avast Software announced it's buying Dutch PC/mobile security software provider and rival AVG Technologies  (AVG) for $1.3 billion. The purchase price represents a 33% premium to AVG's Wednesday close, but is still only equal to a modest 12x AVG's 2017 EPS consensus estimate -- the decline of AVG's traditional search toolbar business (18% of 2015 revenue) likely affected its sale price.

Regardless, Intel  (INTC) is likely pleased with the premium AVG received. The chip giant is reportedly exploring a sale for its Intel Security unit, the product of the company's $7.7 billion 2010 purchase of McAfee. Intel Security competes with the likes of AVG, Avast and Symantec, and -- though having recently seen a sales rebound -- has been stung by competitive and execution issues in recent years. At the least, the AVG deal serves as a good talking point while negotiating with potential buyers.

FireEye  (FEYE) might be glad to see the news as well. The former cybersecurity darling, still trading 84% below its 2014 high of $97.35, reportedly turned down buyout offers earlier this year after hiring Morgan Stanley to explore M&A interest; sources tell Bloomberg the offers came below FireEye's "expectations of $30 or more per share."

FireEye, hurt recently by sales execution issues and competition from cheaper network security offerings, is still considered to have leading solutions for both network malware-detection and endpoint device protection. The company is also considered to offer top-notch services for supplying threat intelligence and probing security breaches. All of that has fueled speculation an IT giant such as Cisco (CSCO) , IBM  (IBM) or HP Enterprise  (HPE) will make a bid, assuming they haven't done so already.

Other firms could also be targeted. Security/storage appliance maker Barracuda Networks (CUDA) , reported in February to be exploring a sale after having crashed in January due to weak earnings and guidance, is a clear possibility. However, it's possible that only parts of Barracuda's far-flung product line will appeal to a given suitor. Also, Barracuda just soared after beating May quarter estimates; the company's improved financial position and stock price might compel it to stay independent for now

CyberArk's (CYBR) position as a top provider of software for protecting a company's privileged accounts -- increasingly seen as a vital line of defense by enterprises -- could make it a target, in spite of sporting steep multiples. Israeli security tech peer Check Point (CHKP) reportedly held preliminary talks to buy CyberArk several months ago. Proofpoint (PFPT) , meanwhile, could receive interest thanks to its leading position in the e-mail security software market. Like CyberArk, ProofPoint wouldn't come cheap, though.

The PureFunds ISE CyberSecurity ETF (HACK) provides a relatively low-risk way for investors to play the security consolidation trend. The fund, whose top-10 holdings include FireEye, CyberArk, Proofpoint, and AVG, rose 1.4% today with the help of the AVG deal.

Cisco is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells CSCO? Learn more now.

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