End of an encryption era?

Contact: Ben Kolada

There has been considerable consolidation in the drive encryption sector over the past half-decade, most recently with Dell acquiring OEM partner Credant Technologies. However, with Dell taking Credant off the table, meaningful consolidation may be complete as there are few potential buyers left.

Dell is buying its OEM disk encryption software partner Credant in what could be seen as a tech tuck-in. The acquisition provides Dell with the IP rights to technology it already sells – Credant’s Data Protection Suite was available on Dell’s laptops and workstations as a preconfigured option. Terms weren’t disclosed, but we’re hearing that Credant generated trailing revenue in the $20-30m ballpark. (We’ll have a full report on the transaction in our next Daily 451.)

After earlier rounds of consolidation in this sector by security giants Symantec, McAfee and Check Point Software, there aren’t many potential acquirers left. In fact, it appears that the number of likely targets may outnumber the likely acquirers. Although M&A in this sector seems to be either at its end or near it, two remaining targets we would point to are still-independent vendors WinMagic and Zecurion.

Similar acquisitions to Dell buying Credant

Date announced Acquirer Target Deal value TTM revenue
September 22, 2011 Wave Systems Safend $12.8m Not disclosed
April 29, 2010 Symantec GuardianEdge Technologies $70m $18m
April 29, 2010 Symantec PGP $300m $75m
October 8, 2007 McAfee SafeBoot $350m $60m*
November 20, 2006 Check Point Software Technologies Protect Data [dba Pointsec] $586m $63.8m

Source: The 451 M&A KnowledgeBase *451 Research estimate

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Double-door exits

Contact: Brenon Daly

When companies look for an exit, there is usually door number one (IPO) or door number two (trade sale). But in some rare cases, it’s not either/or, it’s both. That’s playing out in two very different ways around Symantec’s acquisition of encryption vendor PGP. The purchase by Big Yellow was the first of a doubleheader day in which it also picked up its OEM partner, GuardianEdge Technologies. (Incidentally, the PGP buy was Symantec’s largest acquisition since reaching across the Atlantic for on-demand vendor MessageLabs in October 2008.)

But back to exits. With the sale of PGP, we expect the next big liquidity event for an encryption vendor to be the IPO of SafeNet. We’ve heard recent talk of an offering for the company, which was taken private by Vector Capital in early 2007. Since its buyout, SafeNet has done a few deals of its own, including the contentious acquisition of Aladdin Knowledge Systems in August 2008. We understand that SafeNet is running at north of $400m in revenue.

The sale of PGP also means that investment firm DE Shaw has now recorded one of each potential exit over the past month. In late March, portfolio company Meru Networks went public, and now fetches a market valuation of about $250m. (The offering by Meru came after many other wireless LAN providers got snapped up.) DE Shaw also owned a chunk of PGP, meaning it will also get a payday from Symantec’s $300m purchase of the encryption vendor.