Para-Protect Selling Its Contracts To Riptech

[InfoSec News <isn () c4i org>]

http://www.newsbytes.com/news/02/174376.html

By Nicholas Johnston, Washington Post
CENTREVILLE, VIRGINIA, U.S.A.,
11 Feb 2002, 6:07 AM CST

The end is near for struggling Centreville, Va. data-security firm
Para-Protect Services Inc., which plans to sell its customer contracts
today to competitor Riptech Inc.
 
Terms of the deal, which covers about 50 customers, involve an upfront
payment by Riptech and some revenue sharing between the companies,
although neither firm would disclose any specific figures related to
the transaction.

"They were concerned that their clients are taken care of," said Elad
Yoran, Riptech co-founder and executive vice president. "They don't
want to wind down the business and leave people exposed and
unprotected."

The sale of Para-Protect's customer contracts all but completes the
closing of the four-year-old firm after the departure of its founders
late last year and a decision by investors to shutter the company.  
Para-Protect raised more than $11 million in venture backing from a
group of local investors, including Novak Biddle Venture Partners,
Mid-Atlantic Venture Funds, Winston Partners and Riggs Capital
Partners.

Investors in Para-Protect did not return calls seeking comment.

With the completion of this sale, Para-Protect should be shut down
within the next 60 days according to Joe Ragan, the firm's chief
financial officer.

This is Riptech's third customer acquisition in the past year as the
security industry goes through a wave of consolidations. Last July,
Riptech bought the customers of California-based OneSecure Inc. when
that company went through a reorganization. In December, Riptech
picked up more than 100 customers from Predictive Systems Inc.

A recent study by the Gartner Group, a research firm, reported that
the managed-security business, which Riptech and Para-Protect are part
of, is in the midst of a series of consolidations that should last
throughout this year. The crowded marketplace is being winnowed to a
smaller group of larger players better suited to meet the needs of
corporate clients.

Locally, that trend played out last month when TruSecure Corp. of
Herndon, Va. bought Three Pillars Inc., a network-security monitoring
firm.

"Providing managed-security services is a much more challenging
proposition than most people and even most security companies
realize," Yoran said.

The challenge facing these companies, he said, is building up a large
enough customer base to cover the considerable overhead costs of
operating facilities security firms build to monitor the networks of
their customers. Riptech has two such centers; both are in Northern
Virginia. The company has 150 employees.

"Building an operations center and maintaining an operations center is
not a trivial business," Yoran said. "It's quite expensive."

With today's acquisition, Riptech's customers total "several hundred,"  
Yoran said, and he expects the company to become profitable sometime
this year. So far, Riptech has raised more than $40 million in venture
capital backing from investors including Alexandria-based Columbia
Capital, Providence Equity Partners Inc. and Broadview Capital
Partners. The firm's latest round also included a $2.75 million line
of credit from Comerica Inc.

"We don't expect to need to raise an additional round of outside
financing in order to become profitable," Yoran said.



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