After a lull in the second half of 2015, the cyber security space was suddenly on fire when the rumors of Israel cyber security firm Check Point Software Technologies (CHKP - Analyst Report) being in initial talks to acquire smaller rival CyberArk Software (CYBR - Snapshot Report) surfaced.

The proposed acquisition will lead to new growth opportunities and cost synergies for both companies over the long term. This is especially true, as it will likely add privileged account management to the portfolio of Check Point that would distinguish it in the cyber security market over the other vendors. On the other hand, the deal would expand CyberArk’s reach in the market (read: 16 Bold ETF Predictions for 2016).

If the deal comes true, it would be the largest ever acquisition for Check Point. However, some analysts think chances of the combination of the two Israeli companies are less.

Market Impact

The news spread an air of optimism into the broad cyber security space. Shares of CyberArk jumped 19.6% at the close on Wednesday and another 3.3% on Thursday while Check Point fell 2.3% on Wednesday but rose 0.9% on Thursday. The other stocks in the space also moved up immediately following the merger news on Wednesday but were down slightly at the close due to the weakness in the broad stock market.

Given this, this niche area of the technology sector is in focus for the days ahead. Currently, there are a couple of cyber security ETFs that are detailed below (see: all the Technology ETFs here):
 
PureFunds ISE Cyber Security ETF (HACK - ETF report)

The fund offers global exposure to those companies that ensure safety to computer hardware, software and networks, and fight against any sort of cyber malpractice. It tracks the ISE Cyber Security Index, holding 35 securities in its basket. The product is well spread out across components with CyberArk taking the top spot at 4.7% while Check Point accounting for 3.8% share.

In terms of country exposure, U.S. firms dominate the portfolio with 69% share, followed by Israel (11%), the Netherlands (6%), Japan (4%), United Kingdom (4%), South Korea (4%), Finland (2%) and Canada (1%). The fund has amassed $851.2 million in AUM and charges 75 bps in fees per year from investors. Volume is solid as it exchanges 583,000 shares in hand per day.

First Trust NASDAQ CEA Cybersecurity ETF (CIBR - ETF report)

This ETF has accumulated nearly $106 million in its asset base in six months of its debut. It charges 60 bps in annual fees and trades in moderate average daily volume of about 85,000 shares. The fund follows the Nasdaq CTA Cybersecurity Index, which measures the performance of companies engaged in the cyber security segment of the technology and industrials sectors.

In total, the product holds 34 stocks in its basket with each security holding no more than 6.15% share. In particular, CyberArk and Check Point accounts for 3.5% and 3% of assets, respectively. Like HACK, American firms account for 70% of CIBR while the Netherlands, Israel, United Kingdom and many others make up for a single-digit allocation each.

Solid Growth Ahead

The cyber security market is emerging as the fastest-growing corner of the broad technology space. With extensive adoption of Internet usage in mobiles and computers, and ceaseless cyber-attacks, the need to secure data has increased, resulting in the growing need for a safe cyber space (read: A New Cyber Security ETF from WisdonTree Is on Its Way).
 
In fact, the industry has really exploded over the past several years, moving from a niche industry to something that every company needs to consider. According to Gartner, global security spending will increase 4.7% year over year to $75.4 billion in 2015 with some analysts projecting the global market to grow from $77 billion in 2015 to $170 billion by 2020. As per the report from Markets and Markets, the cyber security market will grow at a compound annual growth rate (CAGR) of 9.8% from 2015 to 2020.

As the industry is flourishing with ample growth potential in the years to come, investors should jump into the space to tap the spending boom and growing demand for cyber security. And if the rumored deal materializes or any other acquisition is announced, it will open up more opportunities for investors in the form of skyrocketing stock prices in the short to medium term.