Ciphertrust buys Secure Computing?

Ciphertrust buys Secure Computing?

Summary: Actually Secure Computing announced that they were buying Ciphertrust. But when you look at the deal you begin to wonder.

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TOPICS: Security
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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.  

Topic: Security

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  • Today's acquisition

    I agree with many of your points. This was a stretch purchase from both financial leverage and technology angles.

    However (and I don't lke this term), "UTM" is a market reality. Many SMBs and remote officies like to invest in low end boxes with lots of stuff on them. Secure Computing has gotten great market share without having to tightly integrate any best-of-breed technologies.

    I'm not saying this will work, but it will help Secure sell another box (Secure Content Management or Messaging Security Appliance or whatever) Symantec has *not* been successful as a Security Supermarket; however, Fortinet, Secure Computing, SonicWall, and others have made some headway with a "Supermarket-in-a-box" approach.

    Can Secure sell a supermarket and a mini-mart in two separate boxes? I doubt it, but it's not impossible.
    adhils
    • Not excited by UTM

      So, the idea is that email gateway security gets added to the Cyber-Gauntlet-SideWinder firewall? This is just a response to Sonicwall + Mailfrontier?

      I do not think much of the "market share" these guys have. Secure, with revenue of $39 million a quarter probably only sells $20 million in UTM stuff? Sonicwall is better with a larger percentage of $40 million coming directly from gateway devices. Compare that to Checkpoint's $133 million and Cisco's claimed umpty gadjillion in PIX sales.
      RStiennon