Red Canary, a cybersecurity firm, has been acquired by Zscaler, another leading player in the same field. The agreement marks a significant move in strengthening Zscaler's security solutions portfolio.
**Zscaler Acquires Red Canary: A Strategic Move in the Managed Detection and Response Market**
In a significant move, cloud security vendor Zscaler has agreed to purchase Red Canary, a leading provider of Managed Detection and Response (MDR) technology. The acquisition, valued at approximately $675 million to $1.9 billion, is set to close around August 2025.
Red Canary, renowned for its AI-powered detection and response capabilities, is a specialized MDR provider. This acquisition aligns with Zscaler's broader ambition to enhance its AI-driven security offerings and accelerate growth in cloud security and Zero Trust frameworks.
For Zscaler, the integration with Red Canary will enable the leveraging of its existing data lake and AI models to power Red Canary’s analysts, potentially reducing threat detection times by up to 10x. The combined AI-powered Security Operations Center (SOC) will provide faster and more accurate threat detection, bolstering Zscaler’s AI-driven cybersecurity innovations like AI Guard, AI-powered segmentation, and AI Security Posture Management.
The acquisition is expected to fill two significant gaps in Zscaler's security portfolio, including endpoint visibility and identity-based visibility. The combined entity targets the $15 billion MDR market, with analysts projecting that MDR services could contribute $200–300 million in annual recurring revenue (ARR) within two years, potentially accelerating Zscaler’s path to $3 billion ARR by 2026.
Analysts from Goldman Sachs and Morgan Stanley have adjusted price targets, anticipating an 18–24 month earnings per share (EPS) accretion due to the strategic fit. Despite integration risks, including potential short-term revenue churn from aligning Red Canary’s smaller customers to Zscaler’s enterprise focus, the acquisition strengthens Zscaler’s competitive differentiation against peers like Palo Alto and CrowdStrike, where Zscaler trades at a relatively attractive price-to-sales ratio.
Integrating Red Canary poses operational challenges, such as merging technology stacks and corporate cultures, with some risk of service disruption. Zscaler intends to optimize the customer base by potentially discontinuing lower-alignment ARR streams, which could cause temporary revenue dips. However, the acquisition complements Zscaler’s Z-Flex program that facilitates modular, pay-as-you-go access to security services, encouraging upselling and reducing procurement friction for customers.
Jeff Pollard, vice president and principal analyst at Forrester, noted that Red Canary had been battling in a highly competitive MDR market for years and had some difficulty scaling up operations on its own. He further stated that endpoint and identity are becoming increasingly important for detection and response in cybersecurity.
Jay Chaudhry, Zscaler’s founder, chairman, and CEO, stated that the acquisition is a natural expansion of Zscaler’s capabilities into managed detection and response and threat intelligence. On the same day as the Red Canary acquisition, Check Point Software Technologies agreed to buy Veriti Cybersecurity.
Red Canary serves approximately 1,000 enterprises across various industries, and its products will continue to integrate with over 200 existing technology and security products. Zscaler protects nearly 45% of Fortune 500 companies, and processes over 500 billion transactions daily. The financial terms of the agreement were not disclosed, but Zscaler is expected to disclose additional information when it reports earnings on Thursday.
- The acquisition of Red Canary by cloud security vendor Zscaler is a strategic move to boost its AI-driven security offerings, specifically in cloud security, Zero Trust frameworks, and Managed Detection and Response (MDR).
- The combined entity aims to address the $15 billion MDR market, with previous projections suggesting MDR services could contribute $200–300 million in annual recurring revenue (ARR) within two years, potentially accelerating Zscaler’s path to $3 billion ARR by 2026.
- The acquisition will enhance Zscaler’s AI-powered Security Operations Center (SOC), leading to faster and more accurate threat detection, and strengthening its competitive differentiation against industry peers like Palo Alto and CrowdStrike.
- The acquisition of Red Canary, a provider renowned for its AI-powered detection and response capabilities, is expected to fill gaps in Zscaler's security portfolio, particularly in endpoint visibility and identity-based visibility. The integration of Red Canary's technology and culture, however, poses operational challenges and potential revenue disruption.
