Thursday, 29 October 2009

ScanSafe falls to Cisco

(By Philip Carnelley, 29 Oct 09, 09:00) Cisco is back on top acquisitive form, using its muscle to pick up ‘bargains’ while prices and competition are relatively low. It has just announced its third purchase this month – doubling its total for the year – after Tandberg (Cisco conferences in Tandberg) and Starent. Cisco has now turned to the UK, buying SaaS web security specialist ScanSafe, which it is purchasing for up to $183m. This week’s lucky winners of Cisco’s bounty are two British former investment bankers, Eldar and Roy Tuvey, and their private-equity backers. The brothers will reportedly pick up around $60m.

This news will be less than welcome at another British security software company,
Clearswift, which operates in a similar space: scanning and securing employees’ web surfing. As we comment in our AnalystViews review of Clearswift (which our subscribers will receive very soon) a gap in Clearswift’s strategy is a strong story on SaaS and the Cloud. Further, IronPort, another Cisco company, is also a Clearswift competitor, so it's facing Cisco's might on two fronts.

While this year’s tally of six acquisitions is well below Cisco’s peak form – for three whole years from 2004 to 2006, it was buying one company per month on average – the company has now passed its 2008 total of five, and three in one month appears to be a Cisco record. As we commented on Tuesday (UK SITS M and A activity reverts to type), there are a lot of sellers out there. For companies like Cisco there are some rich pickings to be had.

For sellers, the news is more mixed: there are companies prepared to buy, but the price you get may be lower than you would like. In ScanSafe’s case, the price paid has surely not disappointed the sellers: ScanSafe’s 2008 revenues were just $23m. But the company is growing at 100% pa, and, of course, software-as-a-service players are getting the richest software market valuations today. According to the FT,
Balderton Capital will see a return of 4 times its investment in ScanSafe, and ten times on its first investment tranche – it has been a ScanSafe backer from its earliest days.

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