Networking giant Cisco's ( CSCO)
$830 million purchase of email security company IronPort is an attempt to bring its portfolio on par with those of rivals that made similar moves more than a year ago. Cisco, which had long been a partner of IronPort, can now further advocate its strategy of creating a "self-defending network" where security is integrated into the network infrastructure. San Bruno, Calif.-based IronPort was founded in 2000 and had raised more than $90 million in venture funding. The company, which makes an email and messaging security box that offers antivirus, antispam and Web security for businesses, is estimated to have generated sales of more than $100 million in 2006. "This move highlights Cisco's commitment to security and provides them with a platform from which they can more effectively compete against Microsoft ( MSFT), Symantec ( SYMC) and others, and partner with innovative, emerging technologies," says Charlie Rice, principal with the investment-banking firm East Peak Advisors. Shares of Cisco were recently up 24 cents, or 0.9%, to $27.96. While it's a pricey acquisition, according to Merrill Lynch analyst Tal Liani, "IronPort's security gateway target market will grow from $1.1 billion in 2006 to $3.4 billion by 2009, a 46% compound annual growth rate which would support a premium valuation," wrote Tiani. Merrill Lynch has an investment-banking relationship with Cisco. And Cisco needed the transaction to level the playing field. Email and messaging security has attracted the attention of big networking and IT security companies, and the segment has been an active space for acquisitions. Last year, Microsoft acquired the enterprise antivirus firm Sybari; that followed Symantec's purchase of the email security player Brightmail for $270 million in 2004.
In July, Secure Computing ( SCUR) acquired IronPort's rival CipherTrust for $273 million. Messaging security is expected to grow to $2.6 billion in 2009, a 31% compound annual growth rate from 2004, according to research firm IDC. IDC also believes that appliances will become the preferred method of deploying security applications within businesses, and that 80% of all network security solutions will be delivered via an appliance by 2007. For Cisco, this could offer the perfect synergy and an opportunity to piggyback security on top of its existing networking products. The IronPort acquisition also underscores that while email and messaging security is a big market, it seems to be an area not meant for a public play. Both IronPort and CipherTrust had been actively exploring the
option of going public, with CipherTrust even having hired a banking firm to help it take the leap. "Email and messaging has been one of the few areas of security where the market and companies are mature enough to support later-stage investing and a credible prospect of an IPO exit," says Rice. "Investors have doubled down on their investments into this space over the last 12-24 months, so the stakes are higher." Cisco's move now means that the few IT players with interests in email security will now have to look harder. IronPort's competitors such as Sendmail, ProofPoint, and MiraPoint are still looking for IPO exits, and companies such as Juniper ( JNPR), storage specialist EMC ( EMC) and even Check Point ( CHKP) may have to start circling their prey.