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Avast and the NortonLifeLock deal: is it worth $10bn?


With new cyber security breaches being announced seemingly every day, coupled with high profile ransomware cyberattacks such as the shutdown of the United States’ Colonial Pipeline last month that temporarily brought the gasoline and fuel supply of the Southeastern U.S. to a standstill, cybersecurity is top of mind for businesses and individuals alike.

So, it is no surprise that the possibility of a merger between Avast Plc (LSE: AVST) and NortonLifeLock Inc. (NSDQ: NLOK) has caught the attention of investors, driving up the share price of the former since news first broke in mid-July.

Following news reports that the two companies are engaged in discussions about a sale of Avast to NortonLifeLock, and the subsequent verification from both parties, investors are closely watching for details of the impending deal.

Is Avast worth $10 billion?

Though Avast and NortonLifeLock have both emphasized that there is no guarantee that a deal will ultimately be reached, Avast has indicated that if an agreement is reached it will consist of a combination of cash and shares. If that happens, it could mean a valuation of the company in excess of $8 billion, and potentially as high as $10 billion, according to industry analysts, who believe the latter number is the one that Avast is more deserving of.

Founded by software engineers Pavel Baudis and Eduard Kucera in 1988, Avast is a Prague-based global cybersecurity software company specializing in cyber security software and artificial intelligence. The company’s so-called “freemium” model for its mobile and desktop software – which provides free uses of its basic offerings but charges for more advanced features- currently boasts more than 435 million users, more than 16.5 million of whom pay for its premium services.

It is that user base that makes Avast such an attractive acquisition target for NortonLifeLock, providing the latter with the opportunity to significantly expand its own group of users and to take advantage of cross-selling opportunities. That is particularly true among small and midsized businesses (SMBs), where Avast already has a large customer base, and where there is still plenty of room for growth, particularly as many of these organizations look to implement hybrid approaches for their employees and the added security risks that come along with managing employees in multiple locations.

“In recent months, one of the most significant cost drivers has been a resurgence in demand for cybersecurity and antivirus investments due to greater confidence among companies about their defenses. Businesses, rather than consumers, largely bore the expense of these initiatives. But this is changing, as enterprise-level organizations have started to recognize the need for secure platforms, while at the same time being forced to re-examine long-held assumptions about what it means to protect themselves from malicious attacks,” said Katherine Brown, the founder of Spyic, which provides consumers with parental control and remote monitoring programs.

And with hackers and malware increasingly targeting smaller businesses, Avast’s access to this target group is even more valuable. Alejandro Mayorkas, U.S. Secretary of Homeland Security, recently noted that small and midsized businesses are now the target of between 50% and 70% of ransomware attacks.

“Cybersecurity issues and concerns are currently leading the headlines and are on fire, making it an incredible opportunity for small to big-time investors to take an interest in. Major breaches, data security risks, remote work setup, and social media hypes are all major factors driving the investments up,” said Chris Worrell, chief privacy officer of Atlanta, Georgia-based Privacy Bee, a privacy management platform that protects individuals from being hacked by removing their personal details from company databases to ensure their information cannot be sold to hackers.

Worrell noted that digital technology rapidly evolved once the pandemic hit, making it easier for cyber thieves to obtain sensitive information and hack the accounts of both individuals and businesses. “More people are on their computers every day, working from home and entertaining themselves, increasing the size of the target for hackers and other bad actors,” he said, adding that as more SMBs seek out better cybersecurity “Avast would get NortonLifeLock access to millions of more PCs.”

This possibility has not been lost on investors. On July 15th, after news broke about a likely sale of Avast to NortonLifeLock, Avast’s shares closed at 595.60 with 16,207,748 shares changing hands, up from a closing price of 504.20 the previous day, when only 1,675,449 shares were traded.

Though the stock price has inched down a bit since then, it still remains well above its trading price prior to news of a likely deal, closing at 581.40 in its most recent day of trading on July 21.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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