SentinelOne Valuation Raises Questions About Reported Palo Alto Networks M&A Talks: Analyst

While there could certainly be advantages in Palo Alto Networks acquiring SentinelOne, the steady valuation of SentinelOne over the past two years raises the question of ‘why now,’ Scotiabank’s Patrick Colville wrote in a note to investors.

Reports claiming that M&A discussions between Palo Alto Networks and SentinelOne are underway do not entirely add up even if there could be obvious advantages in a combination of the two well-known cybersecurity vendors, according to a Scotiabank analyst.

In response to the reports — which were posted Monday by Israel-based media outlets Calcalist and Globes — Palo Alto Networks and SentinelOne each released statements saying they do not comment on rumors.

One big question about the reports is related to SentinelOne’s valuation, which has remained largely steady over the last two years, Scotiabank’s Patrick Colville wrote in a note to investors Tuesday.

“Acquiring SentinelOne’s strong technology and leveraging Palo Alto Networks’ superior sales and reseller motions could be harmonious,” Colville wrote. “However, why now, as SentinelOne’s valuation is not significantly discounted vs. trends over the past +2 years.”

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

Any potential deal for SentinelOne — which is currently valued at $6.3 billion — would also necessarily have to be the largest acquisition by far for Palo Alto Networks to date, Colville noted.

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

However, with the vast majority of the acquisitions, “these have been tuck-in deals,” Colville wrote. “An ~$10B takeout of SentinelOne would be a departure from CEO Nikesh Arora’s playbook over the past 7 years.”

Ultimately, “we wonder how Palo Alto Networks investors would react, especially given the likely [margin impacts] based on our back-of-the-envelope calculations,” he wrote.