February 15, 2006 7:40 PM PST

Panel: Security companies in demand

SAN JOSE, Calif.--Psst buddy, got a security company to sell?

Privately held companies in the business of protecting information from espionage are attractive to potential buyers, a panel of security titans and bankers said here Thursday during the RSA Conference 2006.

The panel discussion, held before a standing-room-only crowd, addressed the current merger and acquisition environment for security companies, as well as what it takes for them to gain interest from potential buyout candidates.

The current valuation for privately held security companies, based on projecting out future revenues, is a mean of slightly more than 6.5 times those revenues. But valuations for publicly traded security companies are substantially lower, said Rob Owens, vice president of equity research for Pacific Crest Securities and panel moderator.

"Most of the innovation comes from smaller companies," said Parveen Jain, executive vice president of corporate development and strategy for McAfee, in explaining the difference between valuing a private security company and a public one.

Another issue for buyers is public companies tend to be more mature, offering less potential revenue growth, said Michael Cristinziano, vice president of strategic development for Citrix, which acquired SSL VPN start-up Net6 for $50 million two years ago.

He added that the ability of a potential buyout target to add to his company's earnings within a 12-month period is a key consideration on whether to do a deal.

Symantec, which has been on a tear with acquisitions big and small, wants its potential lifelong partners to have frank discussions with the security giant on its financial outlook and performance. James Socas, senior vice president of Symantec's corporate development, recalled a time when a private company provided financial information that showed declining revenues over a three-year period, yet had a forecast of more than doubling its revenues in the following year.

McAfee, meanwhile, hones in on the candidate's operating team, assessing whether they can deliver on the technology and financial numbers they have projected, and be flexible if changes are needed to their business plan.

In providing a broad view of areas in which they are interested in making acquisitions, Jain said McAfee finds areas that need addressing include industrial spying, or the tampering and theft of information.

Symantec is anticipating more companies will find it incumbent to take on the role of managing their own security, similar to what consumers have done. Citrix is focusing on deals that will provide its customers with the "best access experience," Cristinziano said.

Technology to solve the leakage of sensitive information is an area that a number of large potential buyers are interested in, said panelist Neel Kashkari, an investment banker with Goldman Sachs.

Kashkari noted Microsoft's entry into the antivirus market has had a negative effect on start-ups in a similar market that are seeking funding or a buyout.

"It's created an overhang with valuations," he noted.

A number of security companies are turning to a buyout, rather than going public, as a means to pay back initial investors, the panelists noted, pointing to NetScreen Technologies' 2002 IPO as the last "meaningful" public offering of a security company.

The regulatory environment, including Sarbanes-Oxley, has made executives of private companies more hesitant to go public, rather than selling their operations, the panelists said. Another issue is that single product security companies are finding Wall Street is less receptive in the post-bubble environment.

And then there are the attractive valuations for privately held security companies, in the current climate.

"Mergers and acquisitions are white hot right now," Socas said. "We've seen a lot of good companies on the private side."

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Security is a field where the bleeding edge is causing many a concern
Security is a field where the bleeding edge is causing many a concern however the USPTO recognizes there are patents out there on locks on PDA's and other systems including single use platforms not presented in public companies or at =conferences where players are generally.

One has to consider what is going on. My thinking is the big players are trying to come up with alternatives to all the patents while buying existing companies that might have sought out real solutions.

The market is an alphabet soup of solutions, me toos and lots of empty claims that companies and banks are buying like what happened with recent banks and companies that thought stopping crime on one letter might protect them on another.

Online, the distance from the front door to the back door is milliseconds if that. Simply someone is going to wake up this year and look not at what the advertising says but at growth in the marketplace since the only two economic realities are income and consumers.

Some one business must break through and that company will be the one to watch and not the ones whose solutions are partial or not patented since everyone else will follow the leader then.

Thats what I think. Ciao now.
Posted by Iohagh (54 comments )
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recycle security products through the food chain..
in the name of free-speech among others..
Posted by freq (121 comments )
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You bet, look to the small guy to be the innovator
It's true, the newest innovations in email and document security software tend to start small, because that's where the smart developers know they can make their mark...

See Essential Taceo, small company, big innovation.
<a class="jive-link-external" href="http://www.essentialsecurity.com/" target="_newWindow">http://www.essentialsecurity.com/</a>
Posted by 209979377489953107664053243186 (71 comments )
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