Picking off one of its fastest-growing rivals in the SSL certificate space and rounding out its own presence in the market, VeriSign announced on May 17 that it is acquiring GeoTrust for roughly $125 million.
If the all-cash deal gains the approval of industry regulators, VeriSign contends that the buyout will significantly expand its reach across the entire SSL (Secure Sockets Layer) certificate market, where it has carved out a leadership role with larger organizations while GeoTrust has significantly eroded its presence among smaller customers.
Among the crown jewels of the deal for VeriSign, in addition to GeoTrusts software, is the Needham, Mass.-based companys network of 9,000 direct reseller partners worldwide.
If upheld, the companies said they expect the deal to close sometime during the second half of 2006. VeriSign indicated that the transaction would be accretive to its earnings per share sometime in fiscal 2007.
“The acquisition of GeoTrust improves VeriSigns ability to serve the reseller channel market with technologies and services that are specifically tailored to their needs,” Judy Lin, executive vice president and general manager, VeriSign Security Services, said in a statement.
“We look forward to leveraging the GeoTrust channel, technology and brand to expand on our existing SSL offerings.”
The merger also brings together two companies that have competed as heated rivals in the SSL certificate space over the last several years.
While VeriSign has arguably dominated the market since its 1999 acquisition of Thawte, GeoTrust had successfully staked a claim to the low end of the market, selling cheaper SSL credentials that essentially offered the same features as its larger rivals.
The companies were such close competitors that they publicly haggled over which firm actually led the segment in overall sales.
As far back as 2004, GeoTrust officials claimed that the vendor had surpassed the sheer number of certificates that its rival was selling, while VeriSign officials accused the firm of juggling data to make its sales seem larger, defending their own top position in the market.
According to researchers at NetCraft, in 2005 VeriSign accounted for roughly 45 percent of the worlds SSL certifications, while GeoTrust accounted for only 27 percent of all certificates.
At least one industry watcher said that VeriSign is making the acquisition not only to take back some market share, but also to gain GeoTrusts growing clout at the low end of the sector.
Larger companies are also looking to spend less of SSL certificates as a result of their limited protections, said John Pescatore, an analyst with Gartner, based in Stamford, Conn.
“The reality is that SSL has provided very little additional security and GeoTrust was able to grab a significant share of the market simply by offering certificates cheaper,” said Pescatore.
“SSL is being used on a wide and expanding level in the enterprise, but companies will want the cheapest certificates available to help employees communicate internally. Thats what GeoTrust is good at.”
Both companies have also made investments in the development of so-called high-assurance certificates, a new format of electronic credentials which promise a far more comprehensive level of verification for online site legitimacy than todays SSL certificates.
The analyst said that when next-generation Web browsers that interact with the certificates, such as Microsofts Internet Explorer 7, reach the market, the new form of identification will become even more popular.
Since the applications process for gaining one of the certificates will require more legwork by VeriSign, the company should be able to charge a high premium for them, said Pescatore. Buying GeoTrust helps the firm compete on both ends of the market, he said.
