Cisco to Buy Software Maker IronPort for $830 Million
January 04, 2007
Cisco Systems Inc., the world's largest maker of computer-networking equipment, agreed to buy closely held IronPort Systems Inc. for $830 million to push into the security software market.
The cash-and-stock purchase adds e-mail and messaging security, San Jose, California-based Cisco said today in a statement. IronPort will be run as a separate unit, said Richard Palmer, a Cisco senior vice president.
The purchase is the biggest for Chief Executive Officer John Chambers since the $6.9 billion acquisition of Scientific-Atlanta Inc. last year, and underscores rising demand for network protection. Cisco bolstered its security unit in April with the $51 million purchase of SyPixx Networks Inc., whose video- surveillance systems tie into computer networks. IronPort's 3,000 clients include Cisco and 38 of the world's top 100 companies.
"The use of messaging will continue to go up, the volume will go up, and therefore security will as well,'' said Zeus Kerravala, an analyst at Boston-based Yankee Group.
Cisco's first acquisition of 2007 follows nine purchases announced last year, each for less than $100 million. The company's other security acquisitions include Allegro Systems Inc. in 2001, Riverhead Networks Inc. in 2004, and Protego Networks Inc. in 2005.
Shares of Cisco rose 73 cents, or 2.6 percent, to $28.46 at 4 p.m. New York time in Nasdaq Stock Market composite trading. The stock has surged 59 percent the past year.
Anti-Spam Market
Cisco leads the global network security market, with 38 percent share in the third quarter of 2006, according to Synergy Research Group. Check Point Software Technologies Ltd., run from Ramat-Gan, Israel, and Redwood City, California, was second at 9.9 percent, followed by Juniper Networks Inc. at 9.2 percent.
With San Bruno, California-based IronPort, Cisco gets a company that Gartner estimates had 6.6 percent of the $635.2 million anti-spam market in 2005. That market is growing 42 percent a year, according to Peter Firstbrook, an analyst at Stamford, Connecticut-based Gartner.
IronPort also puts Cisco in direct competition with Symantec Corp., the world's largest maker of security software, which had 12 percent of the anti-spam market, Firstbrook said.
Cisco can now "protect data and users from inbound threats like spyware and spam as well as enterprise data within the corporation,'' said Palmer.
Security products are part of Cisco's Advanced Technology group, which made up about 20 percent of revenue in fiscal 2006. The company's traditional routers and switches businesses comprise the majority of sales.
Security Purchases
The purchase is the latest in the security market, which Firstbrook estimates has 900 hardware and software makers. International Business Machines Corp. bought Internet Security Systems Inc. for $1.3 billion in October, and storage-maker EMC Corp. agreed to pay $2.1 billion in cash for RSA Security Inc.
"Cisco's move strengthens its security portfolio, and integrating IronPort technologies raises the competitive pressure against other messaging security vendors,'' Prudential Equity Group Inc. analyst Inder Singh wrote in a report. He rates the shares "overweight.''
In August, IronPort reported $25 million in second-quarter billings, an 89 percent increase from a year earlier, according to the company's Web site. CEO Scott Weiss said IronPort doesn't disclose sales. The company sells subscriptions to its software.
IronPort's 408 employees will make up 25 percent to 30 percent of Cisco's security staff, according to Cisco's Palmer. The unit will have its own brand, similar to set-top box maker Scientific-Atlanta and Linksys, the seller of home and small- business routers that Cisco purchased in 2003, Weiss said.
Founded in 2000, IronPort has raised almost $100 million from investors including Menlo Ventures and New Enterprise Associates.
IronPort was advised by investment bank Evercore Partners and law firm Heller Ehrman LLP. Cisco used law firm Fenwick & West LLP and didn't have a financial adviser.
