Why F5 Is Buying Shape Security For $1 Billion

F5 Networks recently announced it is buying Shape Security for $1 billion. These are the details about the deal.

F5 Networks announced it has entered a definitive agreement to buy Shape Security for a total enterprise value of approximately $1 billion in cash subject to certain adjustments. After the closing of the Shape Security co-founder and CEO Derek Smith and the company’s leadership team will join F5 in key management roles. And Shape will remain located at its headquarters in Santa Clara, California.

This acquisition has been approved by the boards of directors of both F5 and Shape. And is expected to close in the first calendar quarter of 2020.

Shape Security is known for protecting the largest banks, airlines, retailers, and government agencies with a sophisticated bot, fraud, and abuse defense. And Shape is able to defend against credential stuffing attacks where cybercriminals use stolen passwords from third-party data breaches to take over other online accounts. And Shape has developed an advanced platform that utilizes artificial intelligence and machine learning — which is supported by powerful cloud-based analytics to protect against attacks that bypass other security and fraud controls.

The acquisition of Shape is consistent with F5’s vision to build the best end-to-end multi-cloud application services company. And it accelerates F5’s product and total revenue growth along with speeding F5’s transition to a software- and SaaS-driven business model.

This acquisition essentially brings together F5’s expertise in protecting applications across multi-cloud environments with Shape’s fraud and abuse prevention capabilities to transform application security. And the two companies will offer organizations comprehensive and end-to-end application security thus potentially saving billions of dollars lost to fraud, reputational damage, and costly disruptions to critical online services.

Shape’s application protection platform evaluates the data flow from the user into the application and leverages highly sophisticated cloud-based analytics to discern good traffic from bad. And with F5’s location in the data flow of traffic in over 80% of Fortune 500 application infrastructures, the company provides the ideal insertion point for Shape’s security services. F5 and Shape are going to dramatically reduce the time and resources needed for organizations to deploy world-class online fraud and abuse protection.

“We know from the companies we work with that applications are critical to running their business. To drive maximum business value and the best experiences for their customers, these apps need to perform flawlessly while protecting data security and user privacy. When a website or application experience is degraded by web fraud and abuse, the result is lost revenue, lost brand equity, and customers jumping ship to the competition,” said F5 President and CEO François Locoh-Donou.

“Since Shape’s inception, we observed a consistent pattern in customer after customer: the use of F5 technology to deliver and enable their applications,” added Smith. “Now, we look forward to the opportunity to deeply integrate into F5’s platform for application delivery and security—F5 provides the optimum traffic flow insertion point for Shape’s industry-leading online fraud and abuse prevention solutions. This, combined with F5’s global go-to-market scale, means we can jointly protect significantly more customers’ applications and users from sophisticated attacks and malicious traffic.”

F5 is expecting to achieve breakeven non-GAAP EPS within 24 months of closing the acquisition and anticipates that the combination will be accretive to free cash flow per share within 12 months of closing. And F5 expects to fund the transaction through cash on its balance sheet and $400 million in a Senior Unsecured Term Loan A.