Bain and Crosspoint Capital acquire ExtraHop in $900M deal

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Bain Capital Private Equity and Crosspoint Capital Partners today announced that they’ve entered into a definitive agreement to acquire ExtraHop, a network detection and response (NDR) provider headquartered in Seattle, Washington. As a part of the strategic transaction, which is valued at $900 million, ExtraHop CEO Arif Kareem and cofounders CTO Jesse Rothstein and CCO Raja Mukerji will continue in their respective roles and Rothstein and Mukerji will remain “significant” investors in the company.

The acquisition comes as the NDR market experiences growth attributable, at least in part, to the pandemic. According to research from Gartner, IDC, Truist, and others, the NDR now exceeds $1 billion and is the second-fastest-growing cybersecurity segment behind cloud access security brokers. In a nutshell, NDR enables organizations to monitor network traffic for malicious actors and suspicious behavior and react and respond to the detection of cyber threats to the network. It’s critical at a time when the average cost of a data breach now exceeds $3.86 million and the average time to identify a breach is 207 days, according to IBM.

ExtraHop sells products that analyze network interactions and leverage machine learning to identify threats in real time. Rothstein and Mukerji, formerly senior engineers at F5 Networks and architects of the company’s BIG-IP v9, founded ExtraHop in 2007 with the goal of helping organizations understand and secure their environments.

ExtraHop sells products for security and IT operations use cases. The core of its technology is a passive network appliance that uses a tap or port mirroring to receive network traffic and perform reassembly to extract app-level metrics and other information. A subset of these metrics is sent to the cloud and used as machine learning features to proactively detect behavior that could indicate data breaches, ransomware, or performance issues.

ExtraHop’s network sensors can be deployed with self-managed physical and virtual appliances or in zero-infrastructure software-as-a-service operations. The company’s products are cloud-agnostic, and its sensors can be deployed on-premises — in datacenters; on campuses; at remote sites; or in multiple cloud environments, including Amazon Web Services, Microsoft Azure, and Google Cloud Platform.

In 2018, ExtraHop launched Reveal(x), a network detection and response product for security operations teams. And in 2020, the company debuted Reveal(x) 360, a fully software-as-a-service-based version of its platform. The company said revenue exceeded $100 million in 2018.

Kareem asserts that the acquisition will provide ExtraHop the opportunity to grow faster and “accelerate” innovation to help customers defend their operations from cyberthreats. He also stresses that there will be “no change whatsoever” for customers or to ExtraHop’s product roadmap and current and future customer commitments.

“Customers will continue to work with the same teams and receive the same high level of service, engagement, and innovation they’ve come to expect,” Kareem told VentureBeat via email. “ExtraHop will continue to operate under its own brand, but following the closing will be majority-owned by Bain Capital and Crosspoint Capital … Both Bain Capital and Crosspoint Capital bring seasoned investors to ExtraHop and provide us the opportunity to accelerate investments in critical areas, build upon our initial successes in the NDR market, and expand our footprint in cybersecurity. This transaction allows us to accelerate our mission and vision through the support of growth-oriented owners who have cybersecurity industry expertise and strong access to capital.”

Accelerating growth

CrossPoint’s Max de Groen notes that ExtraHop is among the first investments from Crosspoint Capital Fund I, a $1.3 billion private equity fund focused on the cybersecurity, privacy, and infrastructure software sectors. It’s also the first dedicated investment made from Bain Capital Fund XIII, Bain’s latest flagship $11.8 billion private equity fund.

The global cybersecurity market is estimated to be worth $418.3 billion by 2028, according to Quince Market Insights. Within the past three years alone, Insight Partners purchased a $780 million controlling stake in threat intelligence vendor Recorded Future, Carbonite paid $622 million for endpoint security firm Webroot, and Palo Alto Networks acquired analytics and automation vendor Demisto for $474.2 million.

“Kareem’s approach is uniquely positioned to help enterprises defend against the most advanced cyberthreats and address the security challenges of multicloud environments, enterprise internet of things, and hybrid workforces,” Groen said in a press release. “We’re thrilled to join the talented team at ExtraHop, in partnership with Crosspoint Capital, to help accelerate the growth of the business and continue advancements in the art of cyberdefense.”

The deal is expected to close in the summer of 2021, subject to customary closing conditions.

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