Artificial Intelligence Solutions Lead Cybersecurity Market Deal Activity
Capstone’s latest Cybersecurity Market Update reports that merger and acquisition (M&A) deal volume in the sector has continued to operate at elevated levels compared to pre-pandemic activity, despite a slight downtick year-over-year (YOY). Public and private sector organizations have faced a growing threat landscape fueled by geopolitical tensions and technological advancements, positioning cybersecurity as a key priority for both businesses and homeland security. Private equity (PE) groups have responded in kind, gradually expanding their presence in the Cybersecurity market over the past several years to record highs. For their part, public strategics have maintained their majority presence while seeking out inorganic portfolio expansion.
Advancements in artificial intelligence (AI) have introduced a multifold tailwind for cybersecurity vendors. These technological developments offer opportunities to both defend against intelligent cyberattacks and protect the vast amounts of oftentimes sensitive data used to power AI applications such as large language models (LLMs) while also bolstering existing cybersecurity solutions with enhanced levels of automation. This lucrative and rapidly advancing market has initiated an arms race amongst leading public strategics, offering increased premiums for smaller solution providers able to fill in the gaps of larger AI cybersecurity strategies.
Despite both commentary from the White House and action by government entities such as the Department of Government Efficiency (DOGE) targeting a downsize in government information technology (IT) spending, the public sector remains a strong—albeit more complicated—source of revenue for the Cybersecurity market. A record setting FY2026 Discretionary Budget Request has driven the government IT budget past $75 billion for the first time, introducing new opportunities within lower levels of government. Mandates from the White House and agencies including the National Institute of Standards and Technology (NIST) and Department of Homeland Security (DHS) have initiated significant IT infrastructure change across the U.S. Federal Government. These entities have also begun treating rising threats from adversary nations and quantum computing as critical threats to national security.
Public companies have significantly outperformed the wider U.S. market in the last twelve months (LTM) period, padding the pockets of strategic buyers who are willing to spend billions (e.g., Google’s acquisition of Wiz and HPE’s acquisition of Juniper Networks) on enhancing their cybersecurity offerings. Despite encroachment by sponsor-backed buyers, strategic acquirers have continued to maintain a majority hold on the M&A market.
Also included in this report:
A detailed summary of active strategic and financial buyers targeting the Cybersecurity market.
Analysis of U.S. private sector IT spending, including which service categories are experiencing expansion and contraction in overall wallet share.
The target company characteristics attracting both traditional M&A attention and equity financing activity.
Capstone Partners’ ADGS Investment Banking Team provides M&A, capital formation, and financial advisory services to the owners of middle market businesses in the Cybersecurity sector. Our team partners with leading mid-to-large sized industrials and manufacturing businesses that serve growing end-markets.
For more information on the Cybersecurity Market Update featured in this report or to speak with one of our ADGS M&A Team members about how to grow, value, and/or sell your company, we are here to help. Contact us today to start a conversation.
