SMB - Making sense of Websense's SurfControl buyout

SMB - Making sense of Websense's SurfControl buyout

The acquisition should position the two companies for short-term growth

Websense's US$400 million buyout offer for rival network filtering specialist SurfControl should help position the two companies for short-term growth and possible acquisition in the future, according to market watchers.

Company officials and industry analysts agree that the marriage of the two network security filtering specialists should provide both firms with immediate opportunities to tap into each others' customer bases and create new integrated products.

By pulling together two sizeable players in a rapidly-maturing segment of the IT security market, experts said, the deal could also serve to accelerate future consolidation of the overall sector.

With enterprise customers consistently demanding packaged products from smaller numbers of security vendors, most parties agree it seems logical for Websense's Web content filtering technologies to be married to SurfControl's messaging and anti-malware tools.

After the two firms integrate their various products, analysts said, security market leaders, including Symantec, McAfee, or Trend Micro, could come calling when looking for their next sizeable acquisition.

"These companies don't want to be relegated to a single feature, which is sort of where they were going, but this merger brings together a lion's share of the filtering market and gives them both breathing room for a while," said Jon Oltsik, an analyst with Enterprise Strategy Group. "There are too many players in the market, and these are two of the more mature, compelling technologies, so this deal could make a lot of sense."

However, unlike WebSense's $90 million buyout of data leakage prevention specialist PortAuthority in Dec. 2006, which he labels as "very strategic," Oltsik said the SurfControl buyout is much more about the larger trend of security market consolidation.

WebSense is touting the SurfControl deal as another step toward competing against the security market big three of Symantec, McAfee, and Trend Micro, said the analyst, but it may be that the merger makes the combined company an attractive target for one of the larger firms.

He likened the deal to network security appliance maker Secure Computing's Aug. 2005 buyout of firewall and content security specialist Cyberguard for US$295 million, another case where the analyst said a merger was based on market rationalization, rather than strategic goals.

"These companies needed to diversify because they can't charge as much, the filtering problem is becoming a lower priority, and people have dealt with it," said Oltsik. "This deal gives WebSense and SurfControl some stability, and they also become a more attractive acquisitions target for any bigger player who wants to own this piece of the market."

In the meantime, Oltsik said he expects Websense to continue to look for additional targets like PortAuthority that give the company a footprint in new and emerging markets.

Websense executives said they truly believe the firm can compete more closely with its larger rivals based on the buyout of SurfControl -- even though the two firms' combined annual revenues of roughly US$275 million don't approach those of antivirus market leader Symantec, which has sales of over US$4.1 billion.

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