• The $13 billion invested in 2Q11 surpassed the total invested in the previous two quarters combined
• Despite a record breaking quarter, early and late stage venture capital ($1.9 billion) declined 14% quarter-on-quarter
• The total volume of private equity exits ($4.5 billion) increased 10x over the prior quarter, as investors looked to realize gains particularly in the defense sector
Declining VC investment blights record breaking quarter
The global security sector grew for the third consecutive quarter with total venture capital and private equity investment reaching $13 billion in 2Q11. This represents an increase of 85% on the $7 billion invested in 1Q11 and is nearly 200% ahead of the $4.4 billion recorded during the corresponding quarter last year. To put it in context, the $13 billion invested this quarter is more than the two previous quarters combined.
During the quarter investment was heavily underpinned by private equity buyouts, which hides the uncomfortable statistic that, regardless of a record breaking quarter, early and late stage venture capital ($1.9 billion) actually declined by 14% on the $2.2 billion invested in 1Q11.
There were two significant buyout deals last quarter that boosted total investment volumes: the acquisition of Securitas Direct AB for $3.4 billion in June by Hellman Friedman LLC and Bain Capital LLC and the $1.9 billion buyout of SRA international Inc. by Providence Equity Partners LLC in April.
From a sector perspective, cyber security accounted for $1.1 billion of venture capital investment, representing 58% of total VC investment in 2Q11. “Cyber security continues to attract the venture capital community,” commented Douglas Lloyd, CEO of Global Security pipeline. “While buyouts dominate the more established parts of the global security sector, such as defense, the prevalence of cyber security threats in a relatively nascent market is driving innovation and attracting investors.” Investment, and innovation will all be examined in more detail at the Cyber Security Finance Forum on 18 October 2011. For more information please go to globalsecuritypipeline.com.
2Q11: a private equity exit bonanza
In 1Q11 four private equity firms secured exits in the sector. In 2Q11 this soared to fifteen, with the total volume of private equity exits reaching $4.5 billion in 2Q11, a 10x increase on the $284 million in the previous quarter. The bulk of the exits were in the defense sector, which continues to look less compelling from a growth perspective than the security vertical.
The two biggest exits last quarter came in the defense sector. The $715 million acquisition of Souriau SAS by Esterline Technologies Corp. from Sagard Private Equity Partners was the largest exit, followed by Carpenter Technology Corp.’s $558 million acquisition of Latrobe Speciality Metals Inc. from Hicks Equity Partners LLC.
M&A: Huge deals in defense underpin record M&A volumes in 2Q11
M&A activity in the global security sector reached $40.7 billion in 2Q11, up 135% from the $17.3 billion recorded last quarter. The total number of transactions also increased in 2Q11, up 70% to 205 from 121 in 1Q11. The top five deals last quarter totalled $15.4 billion, accounting for 38% of the total.
Deals of note last quarter included: Safran’s $5.7 billion acquisition of Avio SpA, a developer of aeronautical, space and marine subsystems and components, in June; the $3.4 billion buyout of security services firm Securitas Direct AB by Bain Capital and Hellman and Friedman; and CenturyLink’s acquisition of Savvis Inc. for $2.5 billion in April.
Cyber security was the strongest sector from a M&A perspective, representing 40% of all M&A deals. The cyber security sector continues to witness a substantial number of small-scale acquisitions while the more traditional verticals in the global security sector are seeing mid- and top-tier companies merge as investment opportunities and growth prospects start to wane.
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About Global Security pipeline
Global Security pipeline (globalsecuritypipeline.com), the online daily news and data service, is the leading independent source of information about the global security sector. Our news team delivers real-time business news and identifies the latest and most relevant regulatory and policy announcements, investment, M&A and new funds and fund closes. This news is supplemented with opinion-pieces based on in-depth interviews with senior-level executives, advisers, investors and policy-makers. Our premium suite of desktop and mobile services provides access to subscription-based business news, transaction data (VC/PE, M&A) and a global directory of professionals active in the sector. Global Security pipeline also offers customised research and senior-level networking events. Tweet: GSpipeline
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