Last week, a new version of ransomware spread across the globe. It affected hundreds of thousands of users in over 150 countries. Ransomware is malicious software, or malware, that locks a computer’s files. Users must pay hackers to regain access. Typically, payments use untraceable Bitcoins. However, this type of malware has existed for decades, with the first known outbreak in 1989.
Ransomware is typically spread either by a user clicking on a link to a website that then installs the malware on the user’s computer or when a user opens an attachment to an email that contains the malware. Once the malware installs itself, a screen will come up that gives the user instructions on how to retrieve their files by making a payment. Otherwise, the files will remain encrypted and inaccessible forever.
The WannaCry attack
The latest attack, called WannaCry or WannaCrypt, introduced a dangerous variation. It began with a malicious web link. Once inside an organization, it spread like a worm across the network, infecting more computers. This rapid spread impacted over 300,000 systems within days. Affected targets included the U.K.’s National Health Service, ATMs in China, Germany’s Deutsche Bahn railway, Russia’s Interior Ministry, and FedEx in the U.S. By last Sunday, WannaCry became the largest global ransomware attack in history.
Cybersecurity growth
WannaCry has drawn global attention to cybersecurity. Businesses must protect their networks and data as the world grows more dependent on technology. We now live in a new age of cyberterrorism. Future attacks may be even worse. This attack will likely inspire copycat ransomware. Hackers may develop similar malware and carry out new attacks.
The event also highlights the fact that cybersecurity is one of the fastest growing and largest technology sectors. In 2004, the global cybersecurity market was valued at $3.5 billion. By the end of this year, the market is estimated to be worth at least 35x that amount. Numbers will continue to grow as cybercrime will cost the world $6 trillion annually by 2021, up from $3 trillion in 2015. There will be 1.5 million cybersecurity job openings by 2019, up from 1 million in 2016, and by 2019, the demand for cybersecurity professionals will increase to approximately 6 million jobs globally.
Implications for M&A
Cybersecurity incidents have grown at a compound annual rate of 60% since 2009. Spending on security rises, yet incidents continue. This drives demand for stronger cybersecurity solutions. In 2016, cybersecurity valuations hit a four-year high at 5.9x revenue. New technologies push companies to acquire stronger market positions. This fuels M&A activity in the sector.
Disruption, thanks to newer and more advanced technologies, leads to an innate need to stay on top of trends and consequently, a rise in M&A as companies seek to acquire stronger footholds in the market. The cybersecurity market is currently attracting investment from various types of companies including IT companies, defense contractors, technology businesses, professional services firms, telecommunications firms and a variety of financial investors. This convergence is driving innovation in the market as companies look to consolidate in order to strengthen their platform and service the growing demand caused by the increasing number of cyber-attacks.
Additionally, given the speed with which hackers change their tactics, it is imperative that organizations assess any target they are looking to acquire to ensure they are not potentially acquiring a firm with an inadequate cybersecurity program. The integration of an acquired firm into the buyer’s IT environment could compromise the buyer’s systems even if they are properly maintained. It is also a possibility that a firm’s true value could be impacted by inadequate security or could require substantial investment in order to become sufficiently secure.
Post-WannaCry Developments
Enterprises increasingly hire cybersecurity firms to secure their systems. After WannaCry, CrowdStrike raised $100 million in a Series D round, valuing the company at $1 billion. Therefore, M&A activity in cybersecurity will likely accelerate. Companies aim to consolidate products and innovate. Awareness of cybersecurity risks, driven by attacks like WannaCry, ensures the market will remain active for years.
