Top 3 Tech M&As of 2017: Identifying Threats & Opportunities Using IP Data

Posted by Timi Olotu on July 28, 2017 at 4:11 PM

M&A deals 2017 meeting roomEvery M&A deal happens because a company wants something and it thinks that acquiring another company (or type of company) will lead to the desired outcome. This article will explain how the acquiring company can use intellectual property (IP) data to:

  1. Identify threats and opportunities to its ultimate goal, once it has legally and financially attached itself to another entity
  2. Make better decisions about how to navigate these threats and opportunities, to arrive at its desired destination

I used the PatSnap platform—which uses AI neural networks to find and visualise patterns within billions of IP data points—to run analyses covering 3 mergers and acquisitions:

  1. Hewlett Packard Enterprise’s (HPE) acquisition of Niara (announced 1 February 2017)
  2. Palo Alto Networks’ (PANW) acquisition of LightCyber (announced 28 February 2017)
  3. Cisco’s acquisition of MindMeld (announced 11 May 2017)

By the end of this analysis, I hope you will have a clearer idea about the strategic value of IP data to business decision making, especially when it comes to M&A.


1.) Hewlett Packard Enterprise (HPE) acquires Niara… but to what end?


Why would HPE—a multinational focussed on cloud computing, Internet of Things (IoT) and analytics—buy the 4-year old cybersecurity start-up, Niara?

In the year leading up to its acquisition of Niara, HPE had been stepping up its level of activity in the IoT space—even partnering with GE to connect industrial machinery to the Internet. Unless HPE wants lawsuits, leaked documents and renegade windmills, its investment in cybersecurity is only natural.

Insecure” and “devices” don’t go well together.

And why Niara? Well, it’s one of the most successful pioneers in “breach (or behavioural) analytics".

Breach analytics software works by establishing a baseline of normal behaviour within a network, then using machine learning algorithms to identify even slight variations in baseline behaviour (as signals of possible attacks). This makes it possible to spot long-term cyber-attack strategies which normally fly under the radar of traditional measures.

This unique selling point is what led Venture Beat to name Niara as one of the next billion-dollar investment opportunities… as far back as October 2015.

But if top-notch cybersecurity for IoT is HPE’s number 1 priority, what are the threats and opportunities that could impact the achievement of that goal?

  1. Patents that are close to Niara’s on the IP landscape could be obstacles to future development
  2. Companies filing patents that cite Niara’s IP could be partners or sources of inspiration

THREAT: infringement dangers on the IP landscape


Although breach analytics (and even cybersecurity) is a budding industry, HPE must not be complacent to the dangers in its technology space —it’s not all whitespace and endless freedom to operate.

I suspect HPE plans to continue growing aggressively in IoT—judging by activities such as its partnership with GE. I suspect it also plans to aggressively develop Niara’s technology, so the cybersecurity software can cope with the requirements of increasingly complex IoT devices. 

When I constructed an IP landscape, based on patents which are most closely related to breach analytics, I found Niara already has close company. 

Click image to enlarge

Breach_Behaviour_Analytics_IP_Landscape_Skitch.png

Based on the IP landscape above, there are 2 technologies for which patents have been filed, which are in areas uncomfortably close to Niara’s (the red dots):

  • A patent filed by Intralinks, covering “Systems and Methods of Secure Data Exchange”—which is close to Niara’s “System, Apparatus and Method for Prioritizing the Storage of Content Based on a Threat Index”
  • A patent filed by Verizon, covering “Method and System for Providing Behavioral Bi-directional Authentication”—which is close to Niara’s “System, Apparatus and Method for Anonymizing Data Prior to Threat Detection Analysis”

The landscape doesn’t look crowded now… but the world of software is fast-moving. And as HPE supercharges Niara’s technology, it must watch this landscape (to which it is so new) like a hawk.

The last thing HPE wants is for its new acquisition to come with a small, yet litigious, competitor attached. For example, Cisco has already been taken to court by Vir2us, a small company in the cybersecurity space.  

Click image to enlarge

Cybersecurity Most Litigious Companies.png


OPPORTUNITY: companies building on Niara’s technology


On the flipside, the IP landscape provides HPE with breadcrumbs it can follow to a better-evolved version of Niara’s technology. 

Click image to enlarge

Niara Important Patents IBM.png

In this visualisation of the top companies whose patents cite Niara’s, we can see big players such as IBM (a company with which HPE has previously collaborated) and PhishMe (a smaller player). 

All the companies in the image represent opportunities for HPE to partner with an expert or learn from novel applications of Niara’s base inventions.


2.) Palo Alto Networks (PANW) acquires LightCyber… but to what end?


My research suggests Palo Alto Networks (PANW) made this acquisition because it needed to raise the value of its stock and neutralise competitor threats. 

PANW shed nearly 30% of its value in 2016, partly due to a rise in competition.

The Motley Fool reported in August 2016 that although PANW looked like a great stock, it was actually down more than 20% thanks to differences between non-GAAP (adjusted) and GAAP (unadjusted) earnings. Then Investor’s Business Daily reported that the deceleration of PANW had disappointed… well, investors.

“…its stock could keep falling if it doesn't counter its competitors in the security platform market…”

The Motley Fool on Palo Alto Networks, December 2016

Palo Alto Networks sells firewalls and threat detection products and services—established, if unexciting, cybersecurity tools. Based on our discussion of HPE and Niara, can you guess which types of cybersecurity companies are growing in value? That’s right… behavioural analytics companies.

Which leads me to LightCyber—a company which uses behaviour-based profiling to accurately and efficiently detect active cyberattacks.

LightCyber investor, Shlomo Kramer, was also an early investor in and board member of Palo Alto Networks.

He commented that LightCyber is the answer to a problem for which there is a big market. This answer being LightCyber's "…ability to detect slow and low type of attacks—sophisticated attacks—using machine learning behavioral analysis of the traffic…" 

It’s likely Shlomo Kramer pitched LightCyber as the solution to PANW’s falling stock and decelerating growth.

Mission almost accomplished. There are just 2 more things Palo Alto Networks might need to do:

  • Keep an eye on the main innovators and patent filers within cybersecurity
  • Maximise the commercial potential of LightCyber’s intellectual property portfolio

In some of my discussions, I’ll borrow from the seminal work on IP strategy, “Rembrandts in the Attic” by Kevin Rivette and David Kline.


THREAT: main innovators and patent filers


If one of PANW’s goals in acquiring LightCyber is to break into the behavioural analytics market, then it needs to make sure it doesn’t get ring-fenced out of that market by a savvy competitor’s IP strategy. 

Rembrandts in the Attic provides a near-perfect cautionary tale. 

In 1994, one of Avery Dennison’s budding business units developed a new film for use in product labelling. Analysis of IP data, however, revealed that Dow Chemical—a formidable presence—was moving into the same space. 

Avery noticed that it had many fundamental patents in the area, so it filed several more to strengthen its position. Avery then went to Dow and told it that it could no longer manufacture the film it was working on.

Dow was forced to dismantle its entire team and withdraw from the market. Avery Dennison’s business unit went on to become one of the company’s fastest-growing.

PANW has just entered a new but promising market—will it end up the Dow Chemical or the Avery Dennison of behaviour analytics cybersecurity?

For example, is PANW aware of the companies with the most similar patent portfolios to LightCyber?

Click image to enlarge

LightCyber Most Similar Patent Portfolios.png

And is PANW aware that, of these companies, Fortinet has the portfolio with the highest estimated value and has been noticeably accelerating its patenting activity since 2012 (with a big jump in 2016)?

Click image to enlarge

LightCyber Portfolio Value.png Click image to enlargeLightCyber Patenting Activity By Year.png


OPPORTUNITY: generating revenue and financial value from IP assets


If PANW’s goal is to increase its commercial value, then it might want to identify LightCyber’s most promising inventions and the patents protecting them, then double down on both.

If the value of LightCyber’s IP skyrockets, the same is likely to happen to PANW’s stock. Since LightCyber is a frontrunner in a promising new market, there probably won’t be a better opportunity for PANW to carve out acres of IP whitespace for itself.

Remember when I mentioned Vir2us suing Cisco? What would give the little guy enough chutzpah to go after a giant like Cisco?

Well, I had a look at the most important patents in cybersecurity. Turns out Vir2us is in positions 3 and 4 on the list of the most cited patents. 

Click image to enlarge

Cybersecurity Most Cited Patents.png

And Vir2us is number 2, second only to Boeing, on the list of largest patent invention families (i.e. inventions which have received the most reinforcement).

Click image to enlarge

Cybersecurity Largest Patent Invention Families.png

Vir2us, though a relatively small company of 2-10 employees (according to its LinkedIn page), pinpointed its most valuable technologies and aggressively reinforced them.

PANW is in a (potentially) better position to reinforce LightCyber’s IP, and to a stronger degree. I’m not suggesting PANW should go around suing people—Hussein Kanji, co-founder of Hoxton Ventures, is probably right in saying lawsuits are good for no one except lawyers.

I use Vir2us only to illustrate how much commercial value and leverage can be gained from a strong IP strategy.

From such a position of strength, PANW can licence LightCyber’s most in-demand technologies to innovators that aren’t direct competitors.

A good starting point would be for PANW to look at the companies already citing LightCyber’s most important patents.

Click image to enlarge

LightCyber Most Citing Companies.png

This would not only reveal which companies to keep an eye on (in terms of licensing or litigation)—but also which of LightCyber’s technologies are currently most attractive to others in the market.


3.) Cisco acquires MindMeld… but to what end?


The only non-cybersecurity based acquisition on my list involves Cisco—the IT and networking multinational giant.

Network World reported in November 2016 that, in the preceding years, Cisco’s collaboration business unit had been in free fall. Apparently, Microsoft, Google and start-ups like Slack were being dubbed Cisco killers.

It would seem Cisco wasn’t ready to let its collaboration business unit die. It responded to death threats by “going crazy with collaboration”. Indeed, Cisco had teamed up with Verizon in early 2016 to create Spark—which is described in business speak as “next-generation collaboration solutions”.

Enter MindMeld—an AI platform for conversational interfaces (like Siri, for example).

It’s clear how MindMeld’s technology could transform Cisco’s suite of collaboration tools—they'd go from being blunt instruments with a sole purpose, to intelligent and adaptive assistants. MindMeld was the first in the market to launch a deep-domain conversational AI and its technology allows companies to build their own conversational interfaces.

If a game-changer is what Cisco seeks, as it locks horns with Microsoft for dominance in the unified communications space, then its acquisition of MindMeld makes sense.

But if Cisco’s long-term vision is to see its collaboration business unit become undisputed champion, then it may be wise to consider these 2 dimensions of its new acquisition:

  1. Microsoft might make an acquisition (or develop a technology) that neutralises any advantage MindMeld gives Cisco
  2. There is an opportunity to use MindMeld’s market-leading IP as a moat 

THREAT: Microsoft might acquire a company (or build a technology) like MindMeld


My suggestion that this threat exists isn’t down to paranoia—Microsoft is already monitoring MindMeld and building on its technology. 

I looked up MindMeld’s most important patents and found its most cited one—which concerns a “Collaborative Communication System with Voice and Touch-Based Interface for Content Discovery”.

Click image to enlarge

MindMeld Important Patents.png

When I investigated the companies whose patents are citing MindMeld’s, I noticed the list includes a Microsoft patent which was published just over a month ago (on 13 June 2017).

Click image to enlarge

MindMeld Important Patent Cited By Microsoft.png

Microsoft will not be left behind… I suspect it will either build around MindMeld’s advantage or acquire a company which takes that advantage away. It’s Cisco’s job to make sure Microsoft has nowhere to run.


OPPORTUNITY: use MindMeld’s technology as a marketplace moat


Like Avery Dennison did with Dow Chemical—and Vir2us is attempting to do with the subject of this discussion—Cisco would be wise to protect its advantage, using a proactive IP strategy. 

MindMeld is in a similar position to other smaller tech companies on this list—it’s a leader in a nascent market. The IP landscape for conversational interfaces isn’t yet crowded. 

If Cisco identifies which of MindMeld’s technologies and patents add the greatest competitive advantage, it can aggressively build on both. This could freeze Microsoft out of certain market opportunities and give Cisco’s collaborative business unit an insurmountable lead.

But if Microsoft builds on MindMeld’s technologies and patents faster than Cisco can—and we know Microsoft has started work on this—then it's adiós Cisco.


See how you can start using IP data today—watch our webinar


Jarrod Britton, Head of Product Support at PatSnap, walks through the best ways to uncover the insight you need to build an effective IP strategy, using the PatSnap platform.1296 The Principles of PatSnap Webinar Webinar_1024x512_v1.jpg

Topics: IP & Innovation, IP Risk, Corporate Strategy, IP Analysis, M&A, Innovation, Mergers, Acquisitions

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