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Optical/IP

Security Players Catch M&A Bug

A flurry of announcements in the security sector has left a couple of leading players a bit fatter and others keener than ever to push their credentials in the burgeoning SSL VPN equipment sector.

First up, the acquisitions (see Check Point Buys Zone Labs and VeriSign Acquires Guardent): Check Point Software Technologies Ltd. (Nasdaq: CHKP) splashed out $205 million ($113 million in cash and the remainder in shares) on Zone Labs Inc., a vendor of Internet security products for businesses and consumers that had raised more than $40 million in funding to date. Check Point will inherit about 200 staff and 25 million users of Zone's software.

The acquisition marks a continuation of Check Point's broader product strategy as well as a greater focus on small business users and individuals (see Check Point Enters Box Market). Analysts at Pacific Growth Equities Inc. believe this to be a good move for Check Point, as it needs to diversify its product range to counter increasing pressure on its market share and revenues. Though Pacific Growth has an interest in the sale -- it participated in Zone's Series B funding -- other analysts agree this was a good move for Check Point.

The acquisition gives it a broader base of opportunities and a business with growing revenues. The Pacific Growth analysts believe Zone will generate about $28 million in revenues in 2003 but that this will increase by 50 percent in 2004 to $42 million. Zone generates about half of its revenues from enterprise users, but the proportion of enterprise revenues is growing rapidly (by 20 percent in the third quarter).

Check Point generates annual revenues of more than $420 million. Its share price closed at $17.03 Monday but scooted up Tuesday following the Zone acquisition news to close at $17.47. It is currently down 37 cents, about 2 percent, at $17.10, valuing the firm at $4.2 billion.

VeriSign Inc. (Nasdaq: VRSN), meanwhile, is to pay $140 million for managed security services player Guardent Inc., a key player in a growing sector.

While VeriSign already has a managed security service offering (see VeriSign, Aladdin Secure KPN) and a big name deal with Merrill Lynch & Co. Inc., this will bolster its standing in a market where there is particular growth in the small and medium-sized business sector as the number and range of security threats increases. According to Infonetics Research Inc., about 75 percent of small companies will buy managed security services by 2006, compared with 25 percent in 2001. And Yankee Group believes the market will grow from $1.5 billion in 2002 to $2.6 billion in 2005.

VeriSign will inherit about 150 staff, hundreds of customers (including 15 of the top 50 global financial services companies), and a relationship with Siemens AG (NYSE: SI; Frankfurt: SIE) (see Siemens Offers Security Service). Guardent has, to date, raised more than $60 million in funding.

Elsewhere in security, there's been plenty of action in the SSL market since Light Reading published its monster test of eight SSL VPN gateways (see Shocking Results in LR's SSL VPN Test and SSL VPNs: Access Anywhere, Anytime ):

And there's a real split of opinion in our current poll on SSL VPNs, with 49 percent of those who have voted believing SSL VPN technology competes directly with IPSec technology, while 51 percent believe they are complementary. You can add your vote to this poll by simply clicking on this link.

— Ray Le Maistre, International Editor, Boardwatch

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