Symantec Adds to Web-Software Arsenal

Symantec (SYMC) shares rose Wednesday following the company's $695 million acquisition of email and security specialist MessageLabs.

The move is designed to boost Symantec's presence in the growing Software-as-a-Service (SaaS) market.

The SaaS model, which was pioneered by Salesforce.com(CRM), uses the Internet to deliver on-demand services to users, and has become one of the hottest technology areas of the last few years. With companies' hardware and software budgets increasingly stretched, SaaS is growing in popularity with users wary of up-front technology investments.

"I think that the opportunity to expand our presence in the rapidly expanding SaaS market is significantly enhanced by having this [MessageLabs] team becoming part of Symantec," said John Thompson, Symantec's CEO, during a conference call Wednesday, alluding to MessageLabs' recent growth. "SaaS offers customers flexibility and choice in managing their technology investments."

Shares of Symantec were up 1.3% to $15.19 in recent trading.

London and New York-based MessageLabs, which grew its revenue 20% to $145 million during its fiscal 2008, also represents an opportunity for Symantec to boost its existing storage and security products as SaaS offerings. Symantec launched its own SaaS technology, the Symantec Protection Network, last year, and will now use Message Lab's 14 global data centers to deliver a mix of Symantec and MessageLabs services.

The software vendor is also gaining access to MessageLabs' 19,000-strong customer base, which includes Motorola(MOT), PNC Financial(SYMC), and Major League Soccer. Symantec expects the deal to sap 2 cents a share from 2009 earnings before items.

At least one analyst feels that the deal represents a step in the right direction.

"Strategically we believe this acquisition makes sense as it provides some critical mass to Symantec's online service initiatives, which have revolved around areas like backup, remote access, and messaging," writes Stifel Nicolaus analyst Todd Weller. "Symantec believes it can accelerate MessageLabs' growth by leveraging its distribution and Symantec will look to offer its current services to the MessageLabs base."

Weller nonetheless maintained his hold rating on Symantec's shares, explaining that there is still more M&A work for the vendor to do

"While we view this move by Symantec positively on the whole, we don't view it as a significant needle mover at this point," he writes. "We do believe that Symantec will have to remain acquisitive in order to drive improved growth - near term, we remain concerned about macro and currency serving as headwinds with the latter exposing low organic growth."

Executives on the conference call also were quizzed about Google (GOOG)'s recent moves into the SaaS space, notably its $625 million acquisition of email archiving vendor Postini last year.

"We have not seen the business impacted by Google's acquisition of Postini," said Chamberlain. "If anything, we have had some stronger quarters."

Symantec is not the only technology vendor throwing its weight behind SaaS at the moment. With firms now under pressure to store and manage massive volumes of email for compliance purposes, tech vendors are eyeing a potentially lucrative market. Networking giant Cisco (CSCO ) , for example, announced its intent to acquire email management vendor PostPath for $215 million in August, and Dell (DELL) snapped up MessageOne for $155 million earlier this year.

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