Contact: Brenon Daly
After two IT security companies put in their IPO paperwork last summer, we’re hearing that Trustwave is almost certain to be the first filer in 2011. The PCI-compliance vendor is currently baking off, with the selection of bankers expected to be complete next week. The actual prospectus would likely be filed around April and the offering would hit later this year, according to several sources.
If the filing goes ahead as planned, Chicago-based Trustwave would join both SafeNet and Tripwire as security providers looking to join the ranks of public security companies. (Or in the case of SafeNet, rejoin the ranks of public security companies.) Our understanding is that Trustwave finished 2010 with roughly $125m in sales, and continues to generate cash. Depending on the timing of the offering, the vendor would likely come to market with a valuation in the neighborhood of a half-billion dollars, according to our quick, back-of-the-envelope math.
Founded in 1995, Trustwave has expanded far beyond its original focus on PCI auditing and remediation, largely through M&A. It has acquired seven companies in the past three years, most of them small firms that, for the most part, were having a tough go of it on their own. Trustwave then adds the acquired technology on top of its Linux platform (TrustOS) and offers it to customers either through an on-premises product or a managed service. All in, Trustwave counts some two million customers.
With new funding difficult to come by, many cash-burning startups are finding that they have no choice but to take a scrap sale. Those desperate deals cut M&A spending on VC-backed startups in the second half of 2008 by nearly three-quarters over the same period in 2007. From July to December last year, 100 venture-backed startups got acquired, for a total bill of just $3bn. That compares to 153 startups sold for a total of $11.1bn during the same period in 2007.
And we’ve seen more of these types of deals so far this year. Oracle, SAP, Barracuda Networks and Quest Software, among other large technology buyers, have all purchased companies for less than the money raised by the startups, according to our estimates. Consider the specific case of Mirage Networks. The network access control (NAC) vendor raised some $40m before discovering that NAC wasn’t really a market after all. (The eight-year-old company generated an estimated $5m in sales last year.) Trustwave picked up Mirage for some $10m, we estimate. Meanwhile, Mazu Networks will have to hit all of its earn-outs to make its investors whole again. About a month ago, Riverbed Technology said that it would pay $25m upfront for the network security vendor, with a possible $22m earn-out. That’s actually not a bad outcome for unprofitable Mazu, which we understand was burning about $1m each quarter. And yesterday, Netezza picked up the assets of data-auditing and protection vendor Tizor Systems for $3.1m; Tizor had raised $26m from investors.
VC-backed tech startups M&A
||2007 deal volume
||2007 deal value
||2008 deal volume
||2008 deal value
Source: The 451 M&A KnowledgeBase