New Opportunities In Cybersecurity

Around the end of May, United Continental Holdings Inc UAL detected a breach into its internal computer systems. Investigators concluded that the Chinese-based hackers suspected to have carried out the cyber attack could have obtained data on the movement of millions of Americans.

Around the same time, those hackers were believed to have also stolen personal information of tens of millions of American insurance holders and government employees.

Such large-scale data breaches have become almost commonplace. As technology has become increasingly integrated into corporate and government operations, cybersecurity has moved up on CEOs' priority lists. With the field continuing to evolve, an attractive investment opportunity has emerged. Bryan Crino, president of Skyway Capital Partners, a boutique investment bank and private equity group, sat down with Benzinga to discuss the promise of information security.

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A Growing Business

To Crino, the most striking feature of the information security sector is simply how fast it's growing. While total IT spending increased about 3 percent during 2014, spending on cybersecurity jumped as much as 19 percent. Protecting internal data and computer systems is now a $77 billion industry, according to Gartner.

Crino believes that breaches are becoming increasingly common, and not only with high-profile data sets like those of United Continental and the U.S. Office of Personnel Management. "They're not just going after the big names anymore," he explained.

"The simple point is that...the risk is growing," he acknowledged. "And the costs of these breaches are extraordinary," which is why management teams at firms around the world are devoting additional resources to protect themselves against such infiltrations.

A Changing Business

"The game is opening up," Crino said. "It's not just for Silicon Valley anymore."

Where information security used to focus on advanced digital solutions and firewalls – the territory of high-tech Silicon Valley firms, the industry has now expanded. Particularly, the Skyway Capital president focused on the large teams of personnel that engage in the relatively non-technical, process-oriented work of checking that a company's internal systems are secure. "It used to be the Navy Seals of tech, but now it's moved down to the foot soldiers."

Crino highlighted three new types of security firms that are rapidly expanding. First, there are those that handle loss remediation – large teams of people that assess a business' computer systems after a breach to assess the extent of the damage and mitigate the consequences.

Next, he described "tech firms that don't require a highly-specialized, technical point of view." As the information security space has expanded, he said, tech solutions are no longer limited to Silicon Valley giants.

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Lastly, he said, there is the "personnel side of the business." He defined this subset as including tech and strategy consulting as well as IT staffing firms. "Now, the companies that used to staff coders and network engineers are staffing security professionals."

Primed For Investors

As the information security industry expands, Crino believes it is becoming increasingly amicable to investors. He said that interested buyers often miss out on the big dogs of Silicon Valley, since their values accelerate so quickly. But now that the industry has evolved, he explained, slower growth, less risk and wider geographic spread have made many opportunities more accessible to the typical investor.

In addition, some high-tech firms are expanding their operations to include the less technical realms of information security as well. FireEye Inc FEYE, through its Mandiant division, provides incident response and security assessment services to help organizations detect, prevent and respond to cyber attacks.

Still, Crino cautioned that many of the emerging cybersecurity "workhorses" may not have reached sufficient scale to satisfactorily mitigate volatility. Additionally, he pointed out that for the Average Joe, many of these companies could be very difficult to understand.

Nevertheless, Crino only expects investment prospects for individual traders and investors to improve as the field develops. In the coming years, cybersecurity could be a dark horse on Wall Street that proves a cash-generator for those who recognize the opportunity early.

Image Credit: Public Domain