Updated with the announcement:

Palo Alto Networks Inc. Wednesday announced it’s buying fellow cybersecurity provider CyberArk Software Ltd.

The Wall Street Journal Tuesday cited sources as saying that the deal could be finalized as soon as this week, and Palo Alto followed with the announcement the next day. Palo Alto is paying $45 a share in cash and 2.2005 share of its stock for each CyberArk share, totaling $25 billion, a 26% premium to the unaffected 10-day average of the daily volume-weighted average price of CyberArk as of last Friday.

The deal is expected to close by the end of Palo Alto’s 2026 fiscal year, ending about a year from now.

Shares of CyberArk jumped more than 13% on the report Tuesday but ended Wednesday up only a fraction of a point. The deal was met with less enthusiasm by Palo Alto Networks investors, who sent its stock tumbling almost 6% Wednesday.

Palo Alto said the deal marks its entry into identity security, calling it a “core pillar of the company’s multi-platform strategy.” The company has been highly acquisitive for years, seeking to become one of the few companies that can offer a wide range of cybersecurity services.

“Our market entry strategy has always been to enter categories at their inflection point, and we believe that moment for Identity Security is now,” Palo Alto Chief Executive Nikesh Arora said in a statement. “This strategy has guided our evolution from a next-gen firewall company into a multi-platform cybersecurity leader.”

Arora not surprisingly mentioned artificial intelligence as heightening the need for better cybersecurity. “Today, the rise of AI and the explosion of machine identities have made it clear that the future of security must be built on the vision that every identity requires the right level of privilege controls, not the ‘IAM fallacy,'” he said. “CyberArk is the definitive leader in Identity Security with durable, foundational technology that is essential for securing the AI era. Together, we will define the next chapter of cybersecurity.”

Israel-based CyberArk sells a suite of cybersecurity products used by more than 8,500 organizations. Many of those products focus on managing how workers log into business applications. CyberArk enables administrators to mandate strong employee passwords, rotate those passwords and implement multi-factor authentication.

Another CyberArk tool enables administrators to manage their own access credentials. Such credentials are a major target for hackers because they can be used to log into sensitive systems. CyberArk can find administrator passwords, save them in an isolated environment and monitor how they’re used.

In addition to regulating access to internal applications, CyberArk helps companies ensure that workers interact with external websites securely. It provides a browser that blocks file uploads and cookie theft attempts. Users can log into some applications with one-time passwords, which prevents more sensitive login credentials from falling into the hands of hackers.

Palo Alto Networks also competes in the user access management segment. In 2019, it launched a tool called Prisma Access that establishes secure connections between employee devices and company applications. Acquiring CyberArk significantly expands its presence in this market.

Palo Alto Networks is also active in other parts of the cybersecurity industry. Its software can help customers protect a variety of assets including cloud environments, desktops and industrial equipment. Furthermore, the company sells a series of physical firewall appliances.

The access management segment isn’t the only area where Palo Alto Networks could receive a boost from CyberArk. Through a $1.54 billion acquisition of its own, the latter company recently gained several public key cryptography products. The tools ease tasks such as checking an application’s code for tempering.

CyberArk generates less than one-fifth the revenue of Palo Alto Networks, but it’s growing significantly faster. The access management specialist’s sales jumped 43% last quarter to $221.6 million. Palo Alto Networks closed the three months ended April 30 with $2.3 billion in revenue, a 15% increase from 12 months earlier.

The CyberArk deal would be the largest by far among the more than 20 acquisitions that Palo Alto Networks has made to date. However, it may not rank as the year’s biggest cybersecurity purchase. That title is currently held by Google LLC’s $32 billion acquisition of Wiz Inc., a venture-backed cloud security provider. 

Photo: Palo Alto Networks