Sophos Sells Majority Stake to Private Equity Group

[Eric Case <ecase () EMAIL ARIZONA EDU>]

Just in case you missed it:

http://searchsecurity.techtarget.com/news/article/0,289142,sid14_gci1511421,
00.html?track=sy160

Less than a week after
<http://searchsecurity.techtarget.com/news/article/0,289142,sid14_gci1511112
,00.html> Symantec's acquisitions of encryption vendors PGP and
GuardianEdge, the rash of consolidation in the computer security market
continued Monday when Sophos agreed to sell a majority interest to global
private equity group, Apax Partners.

Terms were not released, but the company is valued at $830 million,
according to a news release. Minority shareholders TA Associates will also
sell its full interest in Sophos to Apax. Sophos, which specializes in
endpoint security and antimalware protection, said it had revenue in excess
of $260 million as of March 31, the end of its fiscal year.

Apax Partners, meanwhile, focuses on five business sectors, including
technology and telecommunications companies.

Sophos, based in the U.K., was one of the largest remaining standalone
security vendors, trailing Symantec Corp. and McAfee Inc. for leadership in
the endpoint security space, and McAfee in the sale of data protection
suites, according to the Sophos release.

"As the market continues its migration from point solution to tailored,
unified security suites, Sophos' strategy to offer the world's most
resilient, cost effective solutions without any additional complexity
remains key," said Sophos CEO Steve Munford, in a prepared statement."
Apax's financial backing, combined with Sophos's deep understanding of
security and data protection is great news for our customers, prospects and
partners."

"We identified the security software space as an attractive investment area
for us given its rapid growth driven by ever increasing malware threats and
high barriers to entry," said Salim Nathoo, a partner in the Tech & Telecom
team at Apax Partners. "Sophos is a very strong platform and is gaining
market share. Apax's strong track record and industry specific knowledge in
the technology sector makes Sophos a perfect fit."

Sophos founders Dr. Jan Hruska and Dr. Peter Lammer will keep a minority
share of the company.

TA Associates, which sells its full interest in Sophos to Apex, remains in
the security space. The investment firm paid more than $200 million in 2009
for a stake AVG Technologies.

Sophos customers should look more closely at how the company communicates
its strategy and focuses its resources, said Jonathan Penn, a vice president
at Forrester Research Inc. Selling a majority stake to a private equity firm
could be a sign that the firm has the financial resources to expand the
company, he said.

"They could be using this as a foothold to develop a broader security play,"
Penn said. "This could be good news for [Sophos customers] because there's
some backing and financial resources to expand the portfolio and in the end
that's going to make for a more stable and deeper partner."

Penn said Sophos was one of the first to expand beyond threat management at
the endpoint to more proactive data protection. "They definitely have some
praise on the ease of implementation, simplicity of management," he said.

Like many security vendors in this space, Sophos has had a difficult time
competing against Symantec and McAfee, Penn said. The highly competitive
market for endpoint security includes Microsoft, Trend Micro, Kaspersky Lab,
and F-Secure, among others. Sophos has been "moderately successful," Penn
said.

The challenge for Sophos has been to really stand out. The vendor has grown
in market share by being the alternative to the top tier vendors. "That's a
difficult position to grow at the pace the rest of the market is growing,"
Penn said. "My perception is that Sophos hasn't been as aggressive in the
large enterprise space and focusing more on mid-tier businesses."





-Eric





Eric Case, CISSP

eric (at) ericcase (dot) com

http://www.linkedin.com/in/ericcase