Cybersecurity emerges as Israel’s most prolific tech sector

Palo Alto Networks CEO Nikesh Arora has harassed repeatedly in interviews with journalists that till seven years in the past when he was appointed to the job by CTO and founder Nir Zuk, he knew nothing about cybersecurity. “They made enjoyable of the truth that they appointed a Google veteran who does not perceive the sector and made him the CEO of a giant cybersecurity firm,” he mentioned on Wednesday at a press convention hours after saying the acquisition.

However one enterprise precept that guided him alongside the way in which teaches your complete doctrine of the cybersecurity trade: “My technique is to take the perfect firm in its subject, rapidly combine it into Palo Alto Networks and convey it to market in a short time together with the remainder of our merchandise – that is what I’ve all the time accomplished. After we purchased a browser (Israeli firm Talon), nobody understood why we did it, however in a short time we noticed different corporations like Google and Microsoft launch their very own safe browser. The identical was true within the database subject and within the subject of command and management facilities. I am not going to spend 4 years creating a product from scratch now, hoping that it’s going to match into the market. I am panicking about AI and we’re already behind in securing synthetic intelligence brokers.”

Arora understood that the way in which to reach cybersecurity is to amass the businesses that lead the class, ideally when they’re nonetheless early stage and comparatively low cost. It isn’t all the time the main and dearer firm, generally it is doable to accept quantity two. This was the case, for instance, with Palo Alto’s acquisition of Israeli company knowledge safety firm Dig Safety for $400 million (competing with Cyera, which is presently price $6 billion), and the acquisition of the safe browser firm Talon for $458 million (competing with Island, which is presently price $5 billion). These retained very high-quality groups and generated preliminary income, even when fairly small. Till this week, Palo Alto had made practically 30 acquisitions since 2013, in line with the PitchBook database, none of which exceeded the billion greenback mark. Solely earlier this month, Globes reported its acquisition of cybersecurity firm AI Defend for $700 million, simply three years after its founding.

In reality, plainly CyberArk, an organization solely 20% the scale of Palo Alto Networks, has been far more daring in its acquisitions. Final 12 months, it acquired its main rival Venafi for $1.5 billion.

Palo Alto Networks can pay $25 billion for CyberArk, the huge bulk of which will likely be paid in shares. This deal is a sort of “positive” that Nir Zuk’s cybersecurity large is paying for being late to the sector of AI. As know-how advances at a dizzying tempo, so too are the vulnerabilities and the chances of hackers and different cyber attackers.

Palo Alto has taken acquisitions to the acute

Palo Alto Networks has taken acquisitions to the acute, however it’s not the one main cybersecurity firm to take action. US rival CrowdStrike has made at least 41 acquisitions since 2017 – a few of them, like Adaptive Defend and Movement Safety, are Israeli firm. Veteran cybersecurity firm Fortinet has made 37 acquisitions, and Israel’s Verify Level has made 26 acquisitions. Even Wiz understood the foundations of the sport and, simply earlier than being acquired by Google in an enormous $32 billion deal, it acquired 4 corporations, the biggest of which, Gem and Dazz have been for a complete of virtually $800 million.

Not each acquisition by Palo Alto has been profitable. It acquired Israeli cybersecurity firm Cider Safety for the applying safety subject, and after a 12 months, staff have been laid off. So far, the sector has probably not taken off inside the firm. Palo Alto’s Prism cloud safety product is producing gross sales, however it has hit a glass ceiling and is reportedly being challenged by giants like Wiz, Orca, and CrowdStrike.

Efficiently merging corporations isn’t any straightforward activity. Cisco acquired corporations in Israel like LightSpin and PortShift, which have been speculated to be the reply to Wiz, however had problem integrating the product into the market. Epsagon, which it acquired for $500 million, had its key staff transferred to develop different merchandise whereas it grew to become open supply. Even when merchandise don’t finally match into the market, the staff are simply moved to different growth tasks.

How do you grow to be a superpower: Verify Level v Palo Alto

One truth is simple. In terms of the cybersecurity market, mergers and acquisitions are shaping the trade and altering it from finish to finish. In 2023, 20 acquisitions have been made for greater than $200 million, for a complete of $43 billion. A 12 months later, the variety of offers on the excessive threshold elevated to 30, for a complete of over $35 billion. To this point in 2025, offers price $60 billion have already been closed, and that’s with out counting Amiram Shahar’s Upwind in talks to be bought for $1 billion.

These acquisitions have contributed to the creation of cybersecurity superpowers – large corporations that function a sort of division retailer the place you will discover quite a lot of options in a single place. “A decade in the past, the 2 largest cybersecurity corporations – Palo Alto Networks and Verify Level – have been on the high of the biggest corporations within the subject with a market worth of about $15 billion every,” says Oren Junger, managing accomplice on the enterprise capital fund Notable, which invests in cybersecurity and enterprise software program corporations, together with Israeli corporations, and has carried out particular analysis on mergers and acquisitions within the subject. “Palo Alto started to make extra aggressive acquisitions of small gamers that led their market, and tended to pay a whole bunch of hundreds of thousands of {dollars} for corporations with single-digit annual income development even in areas that have been outdoors its experience – company community safety.

“Verify Level, alternatively, was extra conservative, specializing in buying much less flashy corporations and normally paying quantities starting from tens of hundreds of thousands of {dollars}, generally down to some hundred thousand. Right this moment, with Palo Alto Networks price over $115 billion and Verify Level price about $20 billion, it’s clear that aggressive acquisitions of corporations with outstanding entrepreneurs and powerful expertise was a worthwhile transfer, even when it didn’t appear worthwhile at first.”

Verify Level has acquired 26 corporations through the years. It has not but purchased an organization for greater than $1 billion. One of many acquisitions by the Israeli community safety large might have been CyberArk. In 2016, it was reported that then Verify Level CEO Gil Shwed was excited by buying CyberArk, which was then price solely $1.7 billion.

Right this moment, the cybersecurity powerhouses are Palo Alto, with a market cap of $115 billion, Crowdstrike with a price of $115 billion, and Fortinet with a price of $71 billion. After shedding 15% of its worth in in the future this week, Verify Level is ranked eighth with a price of about $20 billion. “In 2015, the mixture worth of cybersecurity corporations was $97 billion, as we speak there are at the very least two powerhouses which can be every traded for over $100 billion,” says Junger. “Strategic acquisitions have grow to be the driving power behind the surge in cybersecurity mergers and acquisitions, which displays rising confidence on this trade. Between 2022 and 2025, they have been answerable for offers price over $100 billion, even earlier than the CyberArk deal.”

The logic behind the acquisitions is obvious: Whereas the trade continues to develop, with a mean annual development price of 19% in gross sales, the variety of cybersecurity software program merchandise utilized by the typical knowledge safety supervisor in a US group ranges from 70 to 90 and might even attain 135 totally different merchandise, in line with Silicon Angel. Palo Alto has mastered the artwork of “bundling,” or cybersecurity packages, by which it presents an extra product at a reduction to those that already use a number of of its different merchandise, to save lots of safety managers the necessity to discover extra suppliers. Typically Palo Alto goes the additional mile and buys an costly product, corresponding to Expanse for $670 million, and presents it without cost to clients simply to maintain them.

Cybersecurity is pushed, in fact, by mergers and acquisitions, however there’s a disadvantage: the variety of potential consumers is proscribed, actually if it’s a firm price billions of {dollars} like CyberArk or Wiz. CyberArk has repeatedly mentioned that it’s not on the market, till the suitable provide comes alongside. “Alternatively, the funds that put money into cybersecurity are quietly dwelling with the prevailing mannequin,” says Junger. “Have a look at what occurred with the info safety firm market (DSPM), with corporations like Dig, Eureka, Polar, Movement – most of them have been finally acquired, even when for smaller quantities. Cybersecurity managers get up within the morning and ask what they’re lacking and that is how new industries are born on a regular basis. It is a dynamic that you do not see in different fields, like fintech, for instance, as a result of nature of the market, which is biased in direction of shoppers, slightly than buying managers in giant enterprises.

Are valuations already too inflated?

Israeli cybersecurity proves again and again that it exists individually from the remainder of the tech trade, with a distinct financial logic, as a sort of state inside a state. Inside six months, two offers from the sector have climbed to first and second place on the listing of the largest-ever Israeli exits.

The privately-held tech firm market – development corporations and startups – proves this level. In response to IVC – LeumiTech, fundraising for cybersecurity corporations stands out above all others with a complete funding of $2.5 billion within the first half of 2025, in comparison with solely $1 billion in fintech corporations and $500 million for the rising subject of defense-tech. Even the glamorous AI trade is unable to compete with cybersecurity and raised “solely” $1.5 billion within the first half of 2025. Though the restoration from the financing disaster of 2022-2023 impacts your complete tech trade, cybersecurity crashed much less and is rising a lot sooner. The typical Sequence A spherical funding for an organization is $24.5 million in cybersecurity, in contrast with $12.8 million in insurtech and fintech, and $15.5 million in enterprise software program.

The massive hole can be mirrored within the inflated valuations of cybersecurity corporations. In response to knowledge from Altshare, which has developed a platform that enables primarily non-public corporations, entrepreneurs and buyers to handle their shares, the typical worth of funding in seed corporations within the cybersecurity sector elevated from $8 million on the finish of 2024 to $12.4 million within the second quarter of 2025 and is predicted to succeed in $13 million by the top of the 12 months. For extra mature corporations in Sequence A funding, the valuation of corporations in new funding will improve from $50 million on the finish of 2023 to $80 million by the top of 2025. The earnings a number of can be comparatively excessive all through all levels of the businesses, with a mean of 5.3 in contrast with 4 in fintech.

Altshare CEO Ronen Solomon explains that cybersecurity companiesw distribute extra choices as a relative proportion of the corporate’s complete shares – 15% greater than in different corporations, and that at cybersecurity corporations, the speed of corporations which have a secondary spherical (by which entrepreneurs and staff promote shares on to buyers) has doubled for the reason that finish of 2023. “In cybersecurity, the crew does not come for the wage, as a result of they know they will get upside in choices and secondary rounds,” says Solomon.

“You get a premium just by being Israeli” “The cybersecurity market is presently in its golden age for quite a lot of causes: the proliferation of options from numerous fields, the rise of AI that’s deterring many gamers, and likewise the rise in protection budgets amongst international locations all over the world,” Adv. Man Lachmann, accomplice and co-head of the IL high-tech apply group at Pearl Cohen, tells Globes. “Inside this market, Israel has been thought-about a world chief for a number of years and Israeli corporations are usually on the forefront of assorted branches inside cybersecurity. They’re additionally much less delicate to the political dangers that different Israeli know-how corporations expertise and right here there’s a premium you obtain just by being Israeli. Nevertheless, this market is carried out nearly individually from different markets with its personal strategic consumers, common serial entrepreneurs and some buyers who perceive and are well-connected in it.”

The massive entrepreneurs put money into one another

In Israel, for instance, most investments in cybersecurity are concentrated within the arms of a small variety of funds: Gili Raanan’s Cyberstarts – the fund behind successes corresponding to Wiz and Cyera, alongside Team8, Image Capital, Glilot Capital, Yoav Leitersdorf’s YL and Natan Shohami’s Hyperwise. Serial entrepreneurs, corresponding to Shlomo Kramer, Assaf Rapaport, Yevgeny Dibrov, Nir Zuk, Mickey Bodai and Amichai Shulman, put money into one another and create a extremely concentrated material within the trade. International enterprise capital giants corresponding to Sequoia, Greylock, Index and Perception have recognized the area of interest and are presently main a few of the seed rounds within the subject, creating one other downside – Israeli entrepreneurs who do not need even one Israeli investor on the board of administrators, an issue that would result in shedding their method within the early levels.

Lachmann says, “The celebration of exits in cybersecurity creates a sort of impact that pushes increasingly entrepreneurs into cybersecurity, which can create a higher problem down the highway. As a result of when a large like Palo Alto arrives and acquires a large like CyberArk, it signifies that the opposite corporations lively in the identical market (identification administration) will obtain smaller acquisition presents, if any. As well as, this will result in degeneration in different know-how areas – each golden age reaches a sure saturation level.”

Printed by Globes, Israel enterprise information – en.globes.co.il – on August 3, 2025.

© Copyright of Globes Writer Itonut (1983) Ltd., 2025.