Cyber-Security was one of the hottest areas in the Tech space during the first half of 2015. Then came the July washout of all high growth and high valuation technology stocks. That sent the sector reeling. The Cyber-Security ETF (HACK), peaked above $33.50 in June of 2015 and traded almost down to $19 in February of 2016. That low marked the bottom of a massive correction. HACK has since recovered to $24.45 and recent developments hint that more Cyber-Security M&A deals may be around the corner.
There are many large cap Tech companies flush with cash and missing a real exposure to what is one of the fastest growing spending areas of IT. And with stock valuations reset to appropriate levels, Cyber-Security M&A makes a lot of sense.
Symantec’s recent Cyber-Security M&A deal has seen shares soar in the sector. Other firms may see this as a sign that investors want them to put cash to work in this space.
First, let’s look at some recent developments in the Cyber-Security space:
- Symantec (SYMC) buys Blue Coat Systems, a network security Co., for $4.65B.
- F-5 Networks (FFIV) shares jumped 10% after announcing it has hired Goldman Sachs to field takeover interest.
- FireEye (FEYE) hired Morgan Stanley to field takeover interest, and rebuffed offers, expecting more than $30/share (100% premium!).
- InfoBlox (BLOX) hired Morgan Stanley to defend itself from Starboard Value after Bloomberg reported in May that Thomas Bravo approached BLOX to take the Company private.
- Imperva (IMPV) shares jumped 10% after Elliott Associates disclosed a 9.8% active stake, seeing shares undervalued.
- Barracuda Networks (CUDA) reported in February it is working with Morgan Stanley to seek a sale.
There is clearly a lot of Cyber-Security M&A and potential for more in the sector. Some additional stocks to watch in this industry are Qualys (QLYS), Palo Alto (PANW), Fortinet (FTNT), Splunk (SPLK), Proofpoint (PFPT), AVG Tech (AVG), and Check Point (CHKP).
I keep an eye out for options action daily, and was the main reason I was long Imperva (IMPV) ahead of the news Monday. Of the stocks in this group the interesting options action has been seen in the following:
Imperva (IMPV): IMPV had more than 5,000 July $45 OTM calls bought to open leading up to the news yesterday, and 1,768 of those closed on 6/21 to buy 3,500+ September $50/$60 call spreads.
Cyberark Software (CYBR): Traders came in aggressive to buy 2,000 October $60 calls at $1.40 to $1.60 on 6/21. The Company was formerly linked to CHKP as a potential M&A target.
F-5 (FFIV): Shares have been quiet since the Goldman news, but on 6-10 2,000 July $125 calls bought to open $2.60 and 300 October $125 calls bought $5.50.
FireEye (FEYE): FEYE has seen a lot of options activity, but the most speculative came on 6/21 when 25,000 September $23 OTM calls bought to open at $0.33 to $0.39.
AVG Tech (AVG): On 5/3 a block of 2,000 December $22.50 calls opened at $1.05.
I will continue to actively monitor names in this sector for unusual options activity, as it previously has been a leading signal ahead of M&A deals. Below is a performance chart for the Cyber-Security Sector ETF (HACK) and select stocks.
Thanks for reading.
The author has a long position in IMPV at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.