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The race to add intrusion detection

Security Dynamics Technologies' acquisition of Intrusion Detection is the latest in a series of similar buys by security firms.

Security Dynamics Technologies (SDTI) has acquired Intrusion Detection, in the latest in a series of similar acquisitions by security software companies.

Security Dynamics acquired the company, which creates software to monitor networks for intrusions by hackers, in an all-stock deal worth $32.5 million.

But that relatively low price tag raised eyebrows among industry analysts.

"Something is wrong with that price," opined Matthew Kovar, analyst at the Yankee Group, who said he's not surprised Security Dynamics is moving into the intrusion detection space. "I don't think this is a high-end, well-developed product. If it were fully developed, it should have gone for 10 times that."

Ellen Carney of Dataquest concurred. "It was a cheap price, considering that WheelGroup did maybe $10 million in revenue last year and got snapped up by Cisco for $124 million."

Intrusion detection is fast becoming a feature added to broader Internet security systems. IDI is the third intrusion detection firm to be snapped up in the last five months, including Cisco's WheelGroup acquisition on February 19, Trusted Information Systems buying Haystack Labs in October 1997, and TIS, in turn, being snapped up by Network Associates on February 23.

In addition, intrusion detection market leader Internet Security Systems (ISSX) went public Tuesday and saw its share price jump from 22 to 40-3/8 in the first day of trading. It traded today at around 38.

Security Dynamics' stock traded at 40-11/16, off 3/16, in midday trading today.

Best known for its hardware security tokens called SecurID, Security Dynamics has itself been growing by acquisition as it attempts to move from a niche provider to a firm with a broad set of security offerings. It bought the leading cryptography vendor, RSA Data Security, in April 1996 for $200 million, and in July 1997 paid $115 million for Sweden's Dynasoft for its single sign-on software.

Privately held Intrusion Detection offers two separate but related products. Kane Security Analyst probes corporate networks for security weaknesses that unauthorized users could exploit to gain access. Kane Security Monitor actively monitors networks for break-ins, then alerts network administrators immediately.

Both components are available now as part of Security Dynamics' SecurSight family of plug-ins for enterprise security, and the security monitoring technology will be incorporated into the SecurSight security management console.

In a transaction to be accounted for as a pooling of interests, Security Dynamics will issue approximately 784,000 shares of common stock. The companies expect the deal to close today.

In a January report, Aberdeen Group estimated the 1998 intrusion detection market at $100 million, double what it had been last year. That market includes tools both for analyzing network weaknesses and for detecting attacks on networks.

Aberdeen ranked Intrusion Detection as No. 3 in the market for what it calls "adaptive network security." ISS, with a 35 percent market share, was rated at the top, Axent ranked second with 23 percent share, and Intrusion Detection followed with 12 percent share--more than WheelGroup's 5 percent.

The acquisition could spark potential acquirers' interest in other small start-ups in intrusion detection, including Centrax, AbriNet, Netect, and Secure Networks.