Australia's BGH completes cybersecurity roll-up

From the outset, Australia-based BGH Capital said it would pursue a middle-market strategy while maintaining the flexibility to execute large buyouts or smaller growth deals. The firm's initial disclosed activity was at the upper end of this spectrum: BGH pursued privatizations of Healthscope and Navitas, securing the latter asset earlier this year at a valuation of A$2.1 billion ($1.5 billion).

For its second completed transaction – excluding a small stake in Healthscope that was sold when Brookfield Asset Management bought the business – the GP has executed a classic middle-market roll-up. However, the target industry represents unchartered territory for buyouts in Australia and New Zealand: BGH is seeking to build the market's first large-scale, full-service cybersecurity player.

"It's a sizeable and growing industry, but there is no strong domestic provider," says a source close to the transition. "While there are some good independent operators, they lack scale and geographic coverage. They don't have enough capital to invest in people and technology, and they tend to be relatively narrow in terms of product line. Increasingly, their clients need a full suite of products to protect themselves in the cybersecurity domain."

Twelve companies agreed to join the platform, known as CyberCX, with the founders and existing senior management rolling over a portion of their equity to become minority shareholders in the business. They are: Alcom, Assurance, Asterisk, CQR, Diamond, Enosys, Klein & Co, Phriendly Phising, Sense of Security, Shearwater, TSS, and YellIT.

The platform will be led by John Paitaridis, who previously led the enterprise division at Optus, Australia's second-largest telecom operator. Alastair MacGibbon, until recently the country's national cybersecurity advisor, will serve as chief strategy officer. BGH identified Paitaridis as a good candidate for a portfolio company CEO role some time ago, broached the idea of a cybersecurity roll-up, and he started engaging with the target companies in January.

Australia's cybersecurity industry is worth A$4.1 billion a year and expanding at a compound annual rate of 15% a year. The CyberCX members – which will retain their brand identities and leadership – employ more than 400 people across 20 offices. Services include consulting and advisory, risk and compliance, assurance, engineering, training, incident response and digital forensics, and managed security services. Aggregate annual revenue is said to exceed A$100 million.

The companies operate in different geographies as well as different cybersecurity domains. For example, Alcom's stronghold is Brisbane, while CQR, Enosys and TSS are based in Adelaide, Sydney and Canberra, respectively. The idea is to create a platform of complementary capabilities that facilitate cross-selling and technology sharing. BGH has not ruled out adding new coverage areas, which might come through organic expansion or M&A, the source notes.

"Cybersecurity risk should be a number one priority for business owners, senior executives and board directors as organizations increasingly embrace digital connected technologies," Paitaridis said in a statement. "It is clear that many businesses, enterprises and government organizations are not yet well enough advised, supported or equipped to defend their mission-critical assets."

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• Topics
• Australasia
• Buyouts
• Technology
• BGH Capital
• Australia