Sunday, 22 March 2009

Sophos – battling the giants

(By Anthony Miller – Sunday, 22nd March 2009 1:50 pm). They have been in business for over 20 years and are one of the largest privately held software companies in the UK. Indeed, you may be surprised to know that enterprise security firm Sophos has British roots (Oxford, actually), albeit they now carry a 20% private equity investment from Boston-based TA Associates, and a 10% stake from a German PE firm by virtue of Sophos’ recent acquisition of Frankfurt-listed Ultimaco.

At a £40m per quarter (say $225m p.a.) revenue run rate, Sophos is tiny compared to global players McAfee ($1.6bn p.a.) and Symantec ($6bn+ p.a.). Sophos registered operating losses for the past couple of years (to March ’07 and ’08), mainly due to its subscription-based licence model, but operating cash flow margins exceed 22%.

I recently spoke with Sophos CEO Steve Munford. Unlike its larger peers, Sophos does not go after the consumer market at all. Also, given its UK roots, Sophos has a strong relative position in Europe, especially since acquiring Ultimaco; some 50% of its revenues now derive from Europe (mainly UK and Germany), 30% from the US and 10% from Asia. The problem is, of course, that just about every enterprise has some form of antivirus software, so the only way Sophos can grow is by winning share. This it appears to be doing, with growth claimed at double the industry average for the past four years. Of course, Munford and his investors have their eye on an IPO when markets eventually turn favourable again. I guess the question is, will they have been snapped up by a competitor before then?

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