Microsoft to Buy Israeli Cybersecurity Startup CyberX

The U.S. software giant is expected to pay $165 million for the internet of things cybersecurity platform company

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The Microsoft logo on a building in Issy-les-Moulineaux, outside Paris, France, April 12, 2016.
The Microsoft logo on a building in Issy-les-Moulineaux, outside Paris, France, April 12, 2016.Credit: Michel Euler,AP

The U.S. software giant Microsoft is expected to announce in the next few days that it has signed a deal to acquire the Israeli industrial cybersecurity startup CyberX for what sources say will be $165 million.

TheMarker revealed before the coronavirus crisis that the two sides were in negotiations. They are now in the midst of getting signatures on the deal from all of CyberX’s shareholders.

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Since it was founded in 2013, CyberX has raised $48 million from investors, most recently in April 2019 at a company valuation of $95 million post money, sources said.

CyberX has developed an internet of things cybersecurity platform for factories and industrial control systems, using machine learning to analyze real-time activities and identifying anomalies. The IoT segment is different in many respects from cybersecurity for computers and servers, where Microsoft is active.

CyberX’s customers are in sectors, such as electric power, energy, water, and pharmaceuticals, that operate critical industrial facilities and infrastructure.

The company was founded by CEO Omer Schneider and Nir Giller, general manager and chief technology officer, both of them veterans of the Israel Defense Forces encryption unit. According to the Israeli Companies Registry, they each own just under 6% of the company. CyberX employs about 100 people, half of them at its research and development center in Israel and the rest in Europe and the United States.

Among its investors are the venture capital funds Norwest Venture Partners, and Glilot Capital, with stakes of about 22% and 19.5%, respectively. Others include Flint Capital, which holds about 13%, Inven Capital (8.5%), OurCrowd (7%) and Qualcomm Ventures (6.5%). The stakes are before dilution – they don’t take into account employee options, which are 12% of shares at CyberX, according to sources.

Microsoft’s Israel R&D center counts some 1,500 staff, about half of them working in cybersecurity. Many of them joined the company after the Israeli startups they were working for were acquired by Microsoft. Over the last decade, the company has bought seven Israeli startups for a combined $850 million, four of them in cybersecurity. Its biggest Israeli acquisition was the 2015 purchase of Adallom for $320 million.

Industrial cybersecurity is a relatively young sector that is growing fast as the internet of things is increasingly deployed in manufacturing. Other Israeli startups in the sector include Claroty, SCADAfence, Radiflow, Siga and Indegy. Indegy was acquired by the U.S. company Tenable for $95 million.

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