Acquisition Strategy

Palo Alto Networks has undergone rapid transformation over the past four-plus years, and acquisitions helped it reach many of its milestones, said Nikesh Arora, CEO and chairman.

“Four-and-a-half years ago, we were firewall with one product and one category,” he said. “Three-and-a-half years ago, we had the early signs of SASE and the early signs of Prisma Cloud, and the early signs of XDR. Two-and-a-half years ago, we had XDR in the market, we had SASE with not that many large customers and with a bunch of functionality that wasn’t there, and we had the early beginnings of cloud security posture management (CSPM) and cloud workload protection (CWP). And a year-and-a-half ago, we started competing with SASE at scale against Zscaler, we started providing more capability on our cloud platform and convincing customers that cloud security is important, and we added a few more subscriptions to our firewalls.”

Palo Alto Networks needed to build a lot of capability in the company and “we couldn’t wait seven years,” Arora said.

“We didn’t have seven years to build a product portfolio so we decided we’re going to buy companies to figure this out because we could do it,” he said. “One type of company was clean in a new category we didn’t have anything in. So things like Demisto. We didn’t have an automation product. Forty percent of our companies were net-new capabilities that didn’t require integration. Sixty percent required integration. There, we only buy No. 1 or No. 2 in an industry.”

Palo Alto Networks has spent about $4 billion acquiring 17 companies during Arora’s tenure.

“In the case of cloud security, we are acquiring because we can stack it next to it and integrate it,” he said. “In the case of network, we think we have a lot of the capabilities … so we’ve to be more careful. That’s why you’ve seen our pace slow down, because we have a lot of capabilities. I think we’re pretty good from a capability perspective. In terms of future M&A guidance, what will drive it is … a unique capability that we believe is important to solve a customer’s problem and we were late by not building it, which means we need that capability now. Outside of that, we have no other aspirations.”