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We told you Monday how cybersecurity stocks are among the best investments of 2013.
That's because the latest example of the sector's growing profit potential came Tuesday when Cisco Systems Inc. (Nasdaq: CSCO), the biggest maker of networking equipment, announced it will acquire Sourcefire, a cybersecurity technology company, for $2.7 billion.
Underscoring the potential Cisco sees from the deal, Cisco will pay $76 a share in cash, a near 29% premium over Sourcefire's prior day close.
Sourcefire's stock rose nearly 28% on the news.
The deal is also good for Cisco investors.
The hook-up gives Cisco a strong foothold in the growing cybersecurity industry, an area in which it has lost market share over the last several years.
Smaller pioneering competitors, such as Juniper Networks Inc. (Nasdaq: JNPR), CheckPoint Software Tech Ltd. (Nasdaq: CHKP) , Palo Alto Networks Inc. (NYSE: PANW) and Fortinet Inc. (Nasdaq: FTNT) quickly established names for themselves ahead of Cisco. They provided innovative and complex security protection beyond traditional firewall shields used in Web applications, social media and video streaming.
The acquisition of Sourcefire will help Cisco compete.
Founded in 2001, in Columbia, MD, Sourcefire's products protect networks from hacking activities, intrusion attempts and vulnerabilities for businesses and government agencies.
"This is certainly going to boost revenue, but more so than anything else it is going to give Cisco engineers technical acumen and establish credibility with Cisco in the space," Jason Ader, a William Blair & Co. analyst told Bloomberg.
In addition to strengthening Cisco's position in the arena, the deal removes a key competitor from the market and creates a larger player (Cisco) in the network security industry.
"With the acquisition of Sourcefire, we believe our customers will benefit from one of the industry's most comprehensive, integrated security solutions – one that is simpler to deploy, and offers better security intelligence," Christopher Young, senior vice president of Cisco's security group, said in a statement.
More M&A Ahead for Cybersecurity
The Sourcefire deal is a profitable reminder of why investors should focus on this sector as one of the best investments of 2013 – and for years to come.
An increasing number of sophisticated cyberattacks continue to plague Americans and the rest of the world. The mounting threat underscores the growing need for better technology-based defenses against such attacks.
Global spending on cybersecurity is projected to hit $46 billion this year in industries running the gamut from energy to communications to finance to healthcare to transportation, according to an ABI Research report released in June.
As the numbers mount and the cost increases, demand for effective defenses to blunt these attacks is growing at a rapid rate.
Indeed, there have been a number of acquisitions by major technology companies racing to fight cyberattacks.