The $3.5M buy of New Zealand-based Esphion adds security to Allot's deep packet inspection products

January 4, 2008

3 Min Read
Allot Snaps Up Security Minnow

IP traffic management vendor Allot Ltd. (Nasdaq: ALLT) has dipped into its M&A kitty to buy monitoring technology minnow Esphion Ltd. for $3.5 million in an effort to expand the security capabilities of its product line. (See Allot Acquires Esphion .)

New Zealand-based Esphion has developed network and subscriber analysis tools that identify botnet user infections and identify the root cause of security threats such as denial-of-service attacks. Esphion says its technology has already been deployed by a number of ISPs and operators in Asia/Pacific, including Hong Kong's PCCW Ltd. (NYSE: PCW; Hong Kong: 0008), Thailand's True Internet , and Telecom New Zealand Ltd. (NYSE: NZT; New Zealand: TEL). (See Who Makes What: Security Appliances.)

Allot says the move is in line with its strategy to integrate additional capabilities onto its platforms, particularly its new service gateway, as a way to meet carrier requirements. Allot says it will do this through in-house developments, partnerships, and acquisitions, and notes that it chose Esphion partly because of its technology's ability to scale up to 10 Gbit/s. (See Allot Announces DPI Platform.)

Esphion, which counts Alcatel-Lucent (NYSE: ALU) and Juniper Networks Inc. (NYSE: JNPR) among its partners, has raised around $3 million in funding from No 8 Ventures and TMT Ventures. The acquisition deal includes an additional $2 million performance-based payment if certain targets are met during 2008.

Allot says the deal will be dilutive to its earnings by about 2 cents during the first quarter, but will become accretive within a year of the acquisition closing, which is expected during the next week. The news had little impact on Allot's share price, which currently stands at $4.87.

Allot's executive VP of corporate development, Azi Ronen, says that, while Esphion is not currently profitable and has not yet achieved significant revenues, the integration of the monitoring technology and the more extensive reach of Allot's sales organization "will make this product line profitable within a year.”

Ronen adds that some of Esphion's customers are also Allot clients, and that those customers "provided us with very good feedback on the Esphion product, both in terms of quality and the benefits to their network."

The DPI systems firm says it can't say how many Esphion staff it's inheriting at this time, but notes that the core R&D and support teams will join Allot.

Allot had a bumpy ride in 2007: Having joined the public markets in November 2006, the firm watched its share price slide as its quarterly numbers failed to live up to expectations. (See 2007 Top Ten: Share Shrinkers, Allot's All Alone in Forecast, Allot Shares Sink on Forecast, Allot Alters Estimate, and Allot Leaps on Nasdaq Debut.)

The company, though, is one of the key players -- along with CloudShield Technologies Inc. , Ellacoya Networks Inc. , Procera Networks , and Sandvine Inc. -- in the growing market for DPI platforms. (See DPI Market Set for Mobile Ramp, AlcaLu Identifies Deep Packet Potential, and IP Traffic Smarts Hit Berlin.)

— Ray Le Maistre, International News Editor, Light Reading

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