Security companies join forces

Signaling further consolidation in the network security industry, Axent Technologies and Raptor Systems plan to merge in a $250 million stock deal.

3 min read
Signaling further consolidation of the firewall and network security industry, Axent Technologies (AXNT) and Raptor Systems (RAPT) announced plans to merge today in a $250 million stock deal.

The acquisition accelerates the trend of smaller firewall and network security firms bulking up to cover more aspects of security, as bigger companies like Cisco (CSCO) and Microsoft (MSFT) enter the security software market.

Underlining that trend, antivirus software vendor McAfee (MCAF) and Network General (NETG) called a press conference today to announce their merger is complete, resulting in a new company called Network Associates.

"This is the hot service area, network security with the emergence of e-commerce," said Ellen Carney, principal analyst at Dataquest. "We're showing a compound annual growth rate of 30 percent through 2001."

She added larger companies are acquiring either intrusion detection services or other firewall companies, likening the Axent-Raptor deal to the October purchase of Haystack Laboratories by Trusted Information Systems, a firewall and security consulting firm.

"It's continued consolidation in this market...Folks that are playing into any number of different security disciplines are looking to provide a more complete suite of security products," said Meta Group analyst Mike Rothman.

As the number of technologies needed for network security expands, security firms also are either partnering with or buying companies with complementary technologies in an effort to offer one-stop shopping for major buyers. Check Point (CHKPF), the leading firewall vendor, is pursuing that strategy through partnering, while Secure Computing (SCUR) has built or acquired multiple technologies to broaden its product line.

One key component of this consolidation trend is customer demand for a unified security console, which allows disparate security components at multiple sites to be managed from a central location. This is something Axent offers with its OmniGuard enterprise security manager.

But Paul Merenbloom, equities analyst with Prudential Securities, thinks Raptor shareholders--including PC giant Compaq Computer--may grumble a bit about the price, which he said represents only a small premium over Raptor's market price.

Under the deal, Axent will exchange 0.8 shares for each share of Raptor, representing a 5 percent premium over Friday's closing price. Axent will issue 12.8 million new shares and be the surviving entity.

Raptor chief executive Shaun McCannon and Axent chief executive John Becker call the deal "synergistic" both in terms of technologies and distribution channels.

Their product lines overlap somewhat in the area of virtual private network (VPN) products for remote users, but in other areas their products are complementary. For example, Raptor has sold mostly through value-added resellers, while Axent has a sizable sales force of its own.

Raptor also adds its firewall or access control software to tokens used for authentication that Axent acquired in January with AssureNet Pathways for $24 million in stock.

In addition to security tokens, Axent offers security management software, an intrusion detection service to ward off hackers, remote access security, single sign-on, and user administration. Raptor developed a suite of firewalls and VPN software. The companies intend to integrate their products so they can be managed from a single site.

Axent will continue to integrate its security products with enterprise management solutions from Tivoli, Computer Associates, Hewlett-Packard, and BMC.

"We believe the firewall market is here and here to stay, and we continue to believe that business will be a major contributors to revenues," said Axent's Becker. Raptor will operate as a separate business unit within Axent.