TOW: Rapid7 Acquires DivvyCloud for $145 Million

Rapid7, a publicly traded cybersecurity company based in Boston, MA, announced on Tuesday that it has agreed to acquire, DivvyCloud, a startup focused on securing cloud environments, for $145 million. ZDNet explains, “The DivvyCloud platform aims to combine deep visibility with automated prevention and real-time risk remediation for multi-cloud environments, protecting against misconfiguration, policy violations, external and internal threats, and identity and access management challenges. The service supports Amazon Web Services, Microsoft Azure, Google Cloud Platform, Alibaba Cloud and Kubernetes.” The company had previously raised $27.5 million with an $80 million post-money valuation. While this looks like a solid outcome for founders, employees, and investors it is hard to know without having a better understanding of cap table dynamics.

There are three main reasons the York IE team made this deal our Transaction of the Week (TOW). First, this is a great example of the IT and cybersecurity markets’ transition to cloud. Rapid7 was originally founded on vulnerability management (VM) software focused on on-premises infrastructure and applications. Over the last few years the company has made a concerted effort to shift their product suite towards cloud and to incorporate a recurring revenue billing model, even though this meant a short term hit to financial metrics. The York IE team admires the courage it took for the Rapid7 leadership team, led by CEO Corey Thomas, to make this shift in the face of potential public market scrutiny. In the York IE team’s opinion the acquisition of DivvyCloud will only help accelerate this shift and is a great fit for the Rapid7 product suite.

That leads to our second reason for highlighting this acquisition- Rapid7’s acquisition history. Rapid7 has made six acquisitions since 2015, with this being the largest deal by a significant amount (Second is the $68m acquisition of Logentries). While these deal sizes wouldn’t blow any market analyst away, they all hold compelling strategic value, and are evidence of a very well thought out growth strategy. Each of the six acquisitions have furthered the Rapid7’s shift to cloud and expanded their product suite, allowing them to build a platform in a time when cybersecurity analysts are inundated with point solutions. With the acquisition of DivvyCloud, Rapid7 will now be a major player in SIEM, vulnerability management and cloud/application security.

The third, and final, reason the York IE team made this the Transaction of the Week, is the timing of the deal. M&A is down across the board, both by deal volume and dollar amount, due to the Covid-19 pandemic. However, Rapid7 decided to push forward with this acquisition. Some of this can be attributed to the fact that the deal was being negotiated prior to the pandemic hitting, but what the York IE Team found more interesting was this quote from Rapid7’s CEO, Corey Thomas, in TechCrunch. “One area of new projects that is actually going forward is how people are trying to figure out how to digitize their operations in a world where they aren’t sure how soon employees will be able to congregate and work together. And so from that context, focusing on the cloud and supporting our customers’ journey to the cloud has become an even more important priority for the organization.” The severe increase in amount of WFH employees has put a strain on enterprise IT and security teams making DivvyCloud’s solution that much more valuable to customers.