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<font size=3>Seems topical:<br><br>
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<blockquote type=cite class=cite cite="">
<a href="http://news.com.com/Security+titans+weigh+in+on+buyout+environment/2100-7350_3-6040297.html" eudora="autourl">
http://news.com.com/Security+titans+weigh+in+on+buyout+environment/2100-7350_3-6040297.html</a>
<br><br>
By Dawn Kawamoto <br>
Staff Writer, CNET News.com<br>
February 15, 2006<br><br>
SAN JOSE, Calif.--Psst buddy, got a security company to sell?<br><br>
Security companies that are privately held and in the business of<br>
protecting information from espionage and offering up secure access<br>
are attractive among potential buyers, a panel of security titans
and<br>
bankers said here Thursday during the RSA Conference 2006.<br><br>
The panel, speaking to a standing-room-only crowd, addressed the<br>
current mergers and acquisition environment for security companies,
as<br>
well as what it takes for them to gain interest in potential buyout<br>
candidates.<br><br>
The current valuation for privately held security companies, based
on<br>
projecting out future revenues, is a mean of slightly more than 6.5<br>
times those revenues. But valuations for publicly traded security<br>
companies are substantially lower, said Rob Owens, vice president of<br>
equity research for Pacific Crest Securities and panel
moderator.<br><br>
"Most of the innovation comes from smaller companies," said
Parveen<br>
Jain, executive vice president of corporate development and strategy<br>
for McAfee, in explaining the difference between valuing a private<br>
security company and a public one.<br><br>
Another issue for buyers is public companies tend to be more mature,<br>
offering less potential revenue growth, said Michael Cristinziano,<br>
vice president of strategic development for Citrix, which acquired
SSL<br>
VPN start-up Net6 for $50 million two years ago.<br><br>
He added that the ability of a potential buyout target to add to his<br>
company's earnings within a 12-month period is a key consideration
on<br>
whether to do a deal.<br><br>
Symantec, which has been on a tear with acquisitions big and small,<br>
wants its potential lifelong partners to have frank discussions with<br>
the security giant on its financial outlook and performance. James<br>
Socas, senior vice president of Symantec's corporate development,<br>
recalled a time when a private company provided financial
information<br>
that showed declining revenues over a three-year period, yet had a<br>
forecast of more than doubling its revenues in the following
year.<br><br>
McAfee, meanwhile, hones in on the candidate's operating team,<br>
assessing whether they can deliver on the technology and financial<br>
numbers they have projected, and be flexible if changes are needed
to<br>
their business plan.<br><br>
In providing a broad view of areas in which they are interested in<br>
making acquisitions, Jain said McAfee finds areas that need
addressing<br>
include industrial spying, or the tampering and theft of
information.<br><br>
Symantec is anticipating more companies will find it incumbent to
take<br>
on the role of managing their own security, similar to what
consumers<br>
have done. Citrix is focusing on deals that will provide its
customers<br>
with the "best access experience," Cristinziano said.<br><br>
Technology to solve the leakage of sensitive information is an area<br>
that a number of large potential buyers are interested in, said<br>
panelist Neel Kashkari, an investment banker with Goldman Sachs.<br><br>
Kashkari noted Microsoft's entry into the antivirus market has had a<br>
negative effect on start-ups in a similar market that are seeking<br>
funding or a buyout.<br><br>
"It's created an overhang with valuations," he noted.<br><br>
A number of security companies are turning to a buyout, rather than<br>
going public, as a means to pay back initial investors, the
panelists<br>
noted, pointing to NetScreen Technologies' 2002 IPO as the last<br>
"meaningful" public offering of a security company.<br><br>
The regulatory environment, including Sarbanes-Oxley, has made<br>
executives of private companies more hesitant to go public, rather<br>
than selling their operations, the panelists said. Another issue is<br>
that single product security companies are finding Wall Street is
less<br>
receptive in the post-bubble environment.<br><br>
And then there are the attractive valuations for privately held<br>
security companies, in the current climate.<br><br>
"Mergers and acquisitions are white hot right now," Socas said.
"We've<br>
seen a lot of good companies on the private side."<br>
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