When the company is the product: high-stakes M&A in Israeli cybersecurity, AI and beyond
Too long, didn't listen? Sophia Tupolev-Luz & Zeevi Michel have you covered with the highlights & clips below.
Change is a constant, but in M&A, the company is always going to be the product.
We speak to cybersecurity investor Shay Michel, Managing Partner of Merlin Ventures, which invests in early-stage, enterprise cybersecurity software companies in Israel.
While AI is already influencing the pace, valuation, and strategies in mergers and acquisitions, we continue to look at the core of deal dynamics.
We start by asking why cybersecurity companies command seemingly illogical valuations at such low revenues.
The answer to the sky-high valuations in cyber lies in another question - implied value. That’s what an acquirer believes they will be able to do with you - and what your contribution margin is going to be. This is all about how you impact their sales, R&D efforts, and for massive players, their ability to go in and quickly dominate a space.
Once you know how to quantify what you bring to the table, you can now lay out a strategy to get on the radar from Day 1. This involves understanding how different acquirers approach acquisitions - from tech giants to private equity firms. Founders should also stay aware of tectonic shifts in their era, like today’s influence of AI in M&A's pace, valuation, and strategies. And particularly for AI and cyber companies, we’re looking at the impact of regulation in large markets on market entry, risk, and yes, your eventual ability to get deals through.
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Understanding implied value and contribution margins - strategic motives behind acquisitions by large tech firms
As ever, understanding motivations, managing relationships, and aligning interests are table stakes for successful outcomes. Shay emphasizes the concept of "implied value" to explain how acquirers look beyond a company's current ARR to see its potential to generate much larger revenues and dominate markets. This concept is also applied to industries beyond cyber, such as data and AI.
AI influence on M&A's pace, valuation, and strategies
We look at the influence of AI on the M&A landscape, with a focus on strategic acquisitions in AI infrastructure and applicative AI. There’s potential for smaller, faster deals in the AI space and how this might eventually change the approach of private equity (PE) acquirers.
Impact of U.S. regulatory standards on market entry, risk, and M&A
We look at regulatory risks and the need for compliance (e.g., SOC2, ISO) in the US, especially for AI and cyber companies. This also includes how regulatory oversight can influence M&A deals.
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Credits:
Produced by: Sophia Tupolev-Luz
Video and sound editing by: Yair Walden
Location: Google for Startups Campus Studio, Tel Aviv