Cloudflare to buy Area 1 Security in its biggest acquisition

[NEW YORK] Cloudflare said it has agreed to buy email protection provider Area 1 Security for US$162 million, the security vendor's largest acquisition to date as it looks to tackle a significant area of potential cyber vulnerabilities for businesses.

The cash-and-stock deal is expected to close in the second quarter, Cloudflare said Wednesday (Feb 23). Closely held Area 1 Security, founded in 2014, had less than US$10 million in annual revenue last year, and is "growing quickly", said Cloudflare co-founder and chief executive officer Matthew Prince. In January, the startup said its "growth rate more than doubled" last year.

"Email is still by far the No 1 place where security threats come from," Prince said. "And while we are not getting fake diplomas or fake Viagra spam in our inboxes, the targeted phishing scams have gone through the roof."

Cloudflare, along with companies such as Palo Alto Networks and Zscaler, is a "zero trust" vendor that aims to limit cyber threats by putting on additional access controls, authentication services and other measures as a security verification layer over every application and employee within a company.

The acquisition comes as Cloudflare faces scepticism from investors over the value of the company. It has surpassed earnings projections for the past several quarters, including a better-than-expected US$194 million in sales in the 3 months through December. But Cloudflare's stock has fallen more than 55 per cent from an all-time high of US$217.25 in mid-November.

The San Francisco-based company released its own email security tool in 2021, joining technology providers like Apple and 1Password in providing services to help individuals and businesses bolster their defences as phishing attacks skyrocket. The resulting robust demand from customers led Prince to shun Cloudflare's penchant for internal development and survey the market for potential partners or an acquisition.

"Whenever you are launching a new area, there are quirks in the technology and things that you have to learn," Prince said. Area 1 Security has "got a great product. I think their sales efforts were more nascent, which is what you would expect in a startup".

Cloudflare expects the acquisition to lead to "a significant uptick in both adoption and in the revenue that will generate", Prince said, predicting that rival providers will follow suit with their own deals. BLOOMBERG