The US Defense Department is facing draconian cuts if the sequester that kicks in on March 1 is not avoided.
Defense stocks have lagged ever since the wars in Afghanistan and Iraq have been winding down. But a new kind of military threat is facing the US: hackers.
Companies combatting this new threat may be an attractive alternative type of investment in defense.
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A report from security firm Mandiant has linked China’s People’s Liberation Army to a sea of cyberattacks on US government agencies, corporations, and media companies of late.
Many companies focused on cyber security will see their budgets increase instead of being cut.
Governments across the globe will be increasing their budgets on maritime and border security and on protecting critical infrastructure.
Private equity firms are already raising capital to invest in ventures that address those issues.
Investment partnerships between mid-sized companies and private equity firms are growing more popular.
Interest in cyberdefense has pushed company valuations so high that strategic investors are looking at companies with as little as $10 million in revenues.
Currently, there are few public companies with a cybersecurity focus. But it is likely to be a key growth area in the near future.
Cybersecurity used to mean protecting against information theft. Now, it means the possible destruction and disruption of everything from databases to the nation’s power grid.
Investors should be on the lookout for companies providing mission-critical software for intelligence, surveillance, and reconnaissance for the CIA and NSA.
Commercial cybersecurity is also a growth area
. Companies springing up to address these issues may realize strong growth on their own, despite budgetary concerns for traditional defense.