Secure Computing Buys Messaging-Security Specialist CipherTrust for $273M

Two medium-size enterprise IT security companies with complementary portfolios join to form a new $250 million entity that will compete with the big guys.

The July 11 merger of two medium-size enterprise data security companies into a formidable, $250 million-per-year corporation could create a new force in the enterprise gateway security market to compete head-on with such established players as Symantec and Trend Micro, analysts say.

Security appliance maker Secure Computing, based in San Jose, Calif., announced after market closing July 11 that it will acquire CipherTrust, a messaging security specialist, for $273.6 million in a cash, stock and credit transaction.

Privately held CipherTrust, headquartered in Atlanta, provides layered security solutions to stop inbound messaging threats such as spam, viruses, intrusions and phishing. It also protects users against outbound policy and compliance violations associated with sensitive data leakage.

Secure Computing has agreed to pay $185 million in cash, 10 million shares of Secure Computing common stock and a $10 million seller note subject to certain performance obligations.

Citigroup, in New York, will finance a $115 million term loan and a $20 million revolving credit facility as part of the merger.

As a result of the transaction, CipherTrust shareholders will have an approximate 14 percent ownership position in Secure Computing.

According to Gartner Group, of Stamford, Conn., the network firewall market for enterprises is a mature yet evolving market that is responding to a continued need for increased integration with other security and network elements, and to interoperate as part of the larger security ecosphere.

/zimages/7/28571.gifFor advice on how to secure your network and applications, as well as the latest security news, visit Ziff Davis Internets Security IT Hub.

Paul Stamp, senior analyst of security at Forrester Research, in Cambridge, Mass., told eWEEK that he would agree that the newly merged company will compete with established market leaders. "I think it makes a lot of sense together: The two companies now have a pretty comprehensive core solution for network and content threat protection—what one lacked, the other has," Stamp said.

The merger also addresses the convergence of threat and messaging management gateways, said Chris Christiansen, program vice president of security products and services at IDC, in Framingham, Mass.

"CipherTrusts messaging security complements Secure Computings focus on unified threat management, Web filtering and hardware authentication," Christiansen said.

"With messaging increasingly viewed as a critical enterprise application, the ability to secure traffic at wire speeds is a critical business enabler. Moreover, CipherTrusts TrustedSource reputation technology, with its network of thousands of sensors throughout the Internet, will add a new element of sophistication and intelligence to existing UTM and SCM products," he said.

TrustedSource is one of the major technologies CipherTrust brings to the table. It is an intelligent, reputation-based firewall that ranks millions of IP addresses on their history of being used or abused as spam "zombies"—computers that are programmed remotely to serve as unknowing senders of spam by "the bad guys," Jay Chaudhry, CEO, chairman and founder of CipherTrust, told eWEEK.

"We examine every e-mail coming and going into a system and check it against the database," Chaudhry said. "We have our black and white lists, and our gray-area list. We give every IP address a kind of credit score, and we analyze about 10 billion e-mails each month."

/zimages/7/28571.gifClick here to read about CipherTrusts phishing and reputation-monitoring service.

Following the merger, Chaudhry will join Secure Computings board of directors as vice chairman and serve as the companys chief strategy officer.

"Customers dont want to have to deal with a hundred different vendors for all their [IT security] needs," Chaudhry told eWEEK. "There are over 800 companies in the enterprise security business, and hundreds of those sell security appliances. Ninety percent of those 800 make less than $15 million per year. It makes sense for those companies who can merge to do so."

According to IDC, the secure content management appliance market is expected to grow to $1.7 billion in 2009, a 47 percent compound annual growth rate from 2004 through 2009. IDC said it expects the messaging security area to grow to $2.6 billion in 2009, a 31 percent CAGR over the same five-year period.

CipherTrust is the current leader (based on 2004 revenues) in the secure content management appliance market, with 20 percent market share, IDC reported.

"As threats and attacks move from targeting the network to targeting applications, companies are requiring application gateways with sophisticated content-analysis capabilities," said John McNulty, chairman, president and CEO of Secure Computing.

"By combining the two companies, we will offer highly differentiated enterprise gateway security solutions that provide integrated, multilayer protection for messaging and Web communication. As a result, we will be better positioned to help protect our customers most valuable asset—their data."

The synergies between the two companies are "tremendous," Chaudhry said.

"Our products and technologies are complementary, our channel and selling strategies are similar but with little overlap in channel partners, and our teams have strong domain expertise in security," he said.

Secure Computing has 650 current employees, and CipherTrust has 250. The transaction is expected to close Sept. 8, a Secure Computing spokesperson said.

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Chris Preimesberger

Chris J. Preimesberger

Chris J. Preimesberger is Editor-in-Chief of eWEEK and responsible for all the publication's coverage. In his 13 years and more than 4,000 articles at eWEEK, he has distinguished himself in reporting...