Actually Secure Computing announced that they were buying Ciphertrust. But when you look at the deal you begin to wonder. The announced deal is for $273 million which is a great valuation
at about 13 times expected 2006 revenue. But look at what Secure is doing to finance the deal:
- Borrowing $135 million from Citigroup
- Borrowing $10 million back from the owners of Ciphertrust (Jay Chaudry+Greylock + Battery Ventures)
- And giving 10 million shares of Secure Computing to the owners which would make them a 15% owner of Secure and would dilute the existing SCUR stockholders.
So Secure Computing is only spending about $40 million of their own cash or somewhat less than the VCs put in to Ciphertrust in 2004. And unfortunately, Secure announced concurrently that they were going to totally miss their numbers for the second quarter (a $2.5 million loss compared to a $900K profit previously forecast). Now, a lot of Secure's recent problems have been some loss of government contracts, but I am beginning to feel uncomfortable with their strategic direction. They are into their fourth or fifth major acquisition of security companies in recent years and they never seem to get it right. They stuck to their "full proxy firewall" philosophy well beyond when the market had identified fast "stateful inspection" firewalls as the technology that best satisfied what corporate buyers were looking for. They are somewhat schizoid as well because not only do they sell Sidewinder-
Raptor-Gauntlet-Cyberguard firewalls but they are sell content filtering and strong authentication products.
As Symantec has highlighted so well there is no success in trying to be the Walmart of security products. Focusing on being number one is a much better strategy than trying to have one of everything. For Secure Computing to now get in to the anti-spam space (let's face it, that is what Ciphertrust is all about) on top of everything else smells like a desperation move. I would have advised that they focus on the authentication products especially now that RSA has gotten snapped up by EMC; potentially opening a short term void in activity that Secure can take advantage of.
As of this writing the market is pummelling SCUTR for the earnings warning and the apparent neglect of operations in favor of racy acquisition strategies. Down a huge
34% 38% today.
Update: For a cogent description of what is happening in the messaging space see Maurene Caplan-Grey's blog.
For a more upbeat view of this acquisition see Mike Rothman's blog.