Analyst: Palo Alto Networks, SentinelOne M&A Deal ‘Highly Unlikely’

An M&A deal between the companies would raise antitrust concerns and constitute a major departure from Palo Alto Networks’ past acquisition strategy, according to TD Cowen’s Shaul Eyal.

If Palo Alto Networks were to pursue an acquisition of SentinelOne, the deal would be likely to raise antitrust concerns and constitute a departure from Palo Alto Networks’ well-established M&A strategy — suggesting that such a deal is far from certain to happen, according to a TD Cowen analyst.

Shaul Eyal, a managing director and senior analyst at TD Cowen, wrote in a note to investors Wednesday that this week’s reports claiming M&A discussions between the two companies are “speculative.”

“We do not even see a remote strategic opportunity despite a complementary product fit and believe that such a deal could likely raise potential antitrust concerns given EDR [endpoint detection and response] market exposure,” Eyal wrote.

For those reasons, an acquisition of SentinelOne by Palo Alto Networks is “highly unlikely,” he wrote.

In response to the reports Monday from media outlets Calcalist and Globes, Palo Alto Networks and SentinelOne each released statements saying they do not comment on rumors.

Palo Alto Networks is the industry’s largest standalone cybersecurity vendor by revenue and valuation, with a current market capitalization just shy of $133 billion. Regulators might view an acquisition deal with SentinelOne as giving “unprecedented dominance across multiple cybersecurity segments” to Palo Alto Networks, leading to increased prices and decreased choice, Eyal wrote.

And while it’s not out of the question that Palo Alto Networks would go after a sizable M&A target such as SentinelOne, currently valued at about $6.5 billion, it’s worth noting that Palo Alto Networks has never paid more than $800 million for an acquisition in the past, according to Eyal.

Palo Alto Networks has acquired at least 17 companies since 2018, most recently completing its acquisition of Protect AI, a startup focused on AI security, on Tuesday.

Ultimately, “we see the company as keeping a disciplined approach despite a wide array of financial and strategic opportunities,” Eyal wrote.

The comments follow an investor note Tuesday from Scotiabank analyst Patrick Colville, who likewise suggested that the M&A discussions reports do not entirely add up even if there could be obvious advantages in a combination of the two well-known cybersecurity vendors.

In addition to being a departure from the prior acquisition strategy of Palo Alto Networks CEO Nikesh Arora, proposing a deal with SentinelOne would raise the question of “why now” — given that SentinelOne’s valuation has remained largely steady over the last two years, Colville wrote.

“It’s not like Palo Alto Networks would be acquiring SentinelOne after a big valuation correction,” he wrote.