Palo Alto Networks on Wednesday announced the acquisition of CyberArk in a $25 billion cash and stock deal. Palo Alto stock tumbled on the news.
Under the agreement, owners of CyberArk stock will receive $45 in cash and 2.2 shares of Palo Alto Networks common stock for each CyberArk share. According to Palo Alto Networks, the deal represents a 26% premium to the 10-day average of CyberArk as of July 25.
On the stock market today, Palo Alto stock fell more than 5% to 183.40 in midday trading. Palo Alto stock fell over 5% on Tuesday after reports of a merger surfaced.
CyberArk stock dipped a fraction to 431.50. Shares popped over 13% on Tuesday.
Palo Alto Stock: Acquisition Spree
"CyberArk is the definitive leader in identity security with durable, foundational technology that is essential for securing the artificial intelligence era," said Palo Alto Chief Executive Nikesh Arora in a release. "Together, we will define the next chapter of cybersecurity."
CyberArk is a leader in privileged access management. Its identity security platform spans over workforce and customer access, end point privilege security, secrets management, and identity management.
The CyberArk deal marks the biggest acquisition by Palo Alto since Arora became CEO in June 2018. Palo Alto had spent nearly $5 billion on some 20 acquisitions since 2018.
Further, Arora remade the cybersecurity firm into a broad platform solutions provider via cloud computing services. Palo Alto has emerged as a strong provider of security operations center management services.
Wall Street Questions CyberArk Acquisition
Palo Alto Networks' core market is firewall network appliances that protect computer networks by blocking online intrusions and monitoring Web-based apps.
The timing of the deal took some analysts by surprise.
At BMO Capital Markets, analyst Keith Bachman said in a report: "Our initial take is negative since we think the message implied is that Palo Alto is concerned about the organic growth runway, and thus is potentially seeking to acquire into a new market segment and new growth. In other words, if Palo Alto underlying growth was flourishing, we are not so sure that management would be pursuing a (this) type of deal. Hence, on the spectrum of offensive vs. defensive, our initial reaction is defensive."
RBC Capital analyst Matthew Hedberg said in a report: "While we like the strategic fit of CyberArk, there are certainly some hesitations, with the most glaring being the size of the deal. Thus far Palo Alto has stayed away from large-scale M&A and focused on tuck-ins, as a large deal would introduce execution and integration issues. Additionally, while CyberArk went through a subscription transition within the past few years, they still sell a mix of software-as-a-service and term-based subscriptions, while also delivering maintenance for on-prem contracts."
KeyBanc analyst Eric Heath holds mixed views on the deal.
On the one hand, Heath said in a report that CyberArk could be "the last major puzzle piece for Palo to offer an end-to-end security portfolio and it strengthens its consolidation positioning against Microsoft and Cisco Systems."
However, Heath said the deal raises many questions.
"Does this signal the cybersecurity market is maturing? Is there not enough natural demand for Palo Alto's platformization strategy with its current portfolio?," he asked. "Why not acquire a smaller, privately held (identity) vendor?"
Palo Alto Earnings Due Aug. 18
In 2025, Palo Alto stock turned negative with Wednesday's retreat while CyberArk stock has jumped 29%.
At Raymond James, analyst Adam Tindle said CyberArk shareholders should evaluate the Palo Alto deal cautiously. He said the deal raises questions.
"Why does this make sense for CyberArk shareholders considering the heavy equity component of this deal is causing the premium to erode real-time, and the business was on a strong trajectory as a standalone platform that was gaining share in the identity market with a strong position in the AI identity space following the Venafi acquisition?," he asked in a report.
Earnings for Palo Alto stock are due Aug. 18. Meanwhile, CyberArk released financial results on Wednesday. The company said Q2 revenue rose 46% to $328 million, with subscription revenue up 66% year-over-year to $264 million.
CyberArk in 2024 acquired Venafi, targeting the market in Internet of Things — web-connected devices in factories, agriculture, telemedicine, retail stores, food services and other applications. Salt Lake City-based Venafi is a key player in so-called machine identity management.
Palo Alto stock holds an IBD Composite Rating of 95 out of 99, according to IBD Stock Checkup.
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