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JFrog Expands Security Portfolio With VDoo Acquisition

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Software build automation company JFrog has announced its intention to acquire Vdoo, makers of security scanning software, for approximately $300 million in a cash and stock deal.

“This move will amplify JFrog’s current success with our security solution, JFrog Xray, and create the expectation that ‘fearless releases’ will be the experience for both Security and Development teams,” said Shlomi Ben Haim, co-founder and CEO of JFrog, in a statement.

Founded in 2017, Vdoo has taken in approximately $70 million in funding, according to Crunchbase, most recently $25 million in January 2021.

“If any DevOps company isn’t also a security company, it is solving only a small piece of the puzzle,” said Netanel (Nati) Davidi, co-founder and CEO of Vdoo.

Subject to adjustments, the acquisition consists of at least $90 million in JFrog ordinary shares based on the average close price during the last 15 trading days.

JFrog has reiterated its financial guidance for full year 2021, with revenues still expected to be between $198 million and $204 million. This is despite JFrog anticipating consolidated operating expenses to increase by $9-10 million for the rest of 2021. JFrog did not share any revenue numbers relating specifically to Vdoo.

A purchase price of approximately 4.3 times funds raised indicates to me that JFrog sees plenty of growth left for Vdoo. JFrog's existing product portfolio, which includes Artifactory, Xray, and Pipelines, is well regarded but has substantial competition. The security landscape is far larger, and provides a much larger market for JFrog to grow into, and Vdoo provides another entry-point to start with customers that might already have a CI/CD toolchain.

Software supply chain has much greater focus now compared to a year ago, and security generally has reached new heights of attention. It's hard to see this acquisition going poorly for JFrog unless the execution is truly abysmal.

The massive expansion phase for security startups from some years ago has yet to reach the crunch times of consolidation and failure that we usually see as a market reaches maturity. It appears that there is plenty of new growth opportunity left, but perhaps we're starting to see the better players get picked off for acquisition before the crunch inevitably arrives.

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