Secure Computing is purchasing CipherTrust for total consideration of $273.6 million, which is comprised of $185 million in cash, 10 million shares of Secure Computing common stock, and a $10 million seller note that is subject to certain performance obligations. As a result of the transaction, CipherTrust shareholders will have an approximate 14% ownership position in Secure Computing.
Under the terms of the agreement, Secure Computing has obtained a commitment for a senior secured credit facility from Citigroup. The facility comprises a $115 million term loan and a $20 million revolving credit facility. The transaction is expected to close by September 8, 2006, subject to any necessary regulatory approvals and customary closing conditions.
Depending on the closing day of the transaction, Secure Computing expects CipherTrust to add approximately $15 million to $20 million in revenue in 2006, and approximately $80 million in revenue in 2007. The transaction is expected to be breakeven with respect to pro-forma earnings per share by mid-2007 and accretive to pro-forma earnings per share in the second half of 2007.
In conjunction with this transaction, Jay Chaudhry, CEO, chairman and founder of CipherTrust, will join Secure Computing's Board of Directors as Vice Chairman and serve as the company's Chief Strategy Officer and a member of the company's senior management team.
"Over the past few months, we have made excellent progress with the integration of CyberGuard," said John McNulty, chairman, president and CEO of Secure Computing. "With the brunt of the initial integration activity now behind us, we believe the time is right to continue investing in enterprise gateway security, which is experiencing strong growth. After an extensive review and due diligence process, we believe CipherTrust is the perfect addition to Secure Computing."
According to IDC, the Secure Content Management Appliance market is expected to grow to $1.7 billion in 2009, a 47% CAGR from 2004 through 2009. In the Messaging Security sub-market, IDC expects this area to grow to $2.6 billion in 2009, a 31% CAGR from 2004 through 2009.
CipherTrust is the current leader (based on 2004 revenues) in the Secure Content Management Appliance market with 20% market share. Also as part of the transaction, Secure Computing will become well-positioned in the Messaging Security Market. According to IDC data, CipherTrust is currently the clear market leader in messaging security gateway appliances. Appliances are becoming the preferred method of deploying security applications within the Enterprise, and IDC estimates that 80% of all network security solutions will be delivered via a dedicated appliance by 2007.
"As threats and attacks move from targeting the network to targeting applications, companies are requiring application gateways with sophisticated content analysis capabilities," said McNulty. "By combining the two companies, we will offer highly differentiated enterprise gateway security solutions that provides customers with integrated, multi-layer protection for messaging and web communication. As a result, we will be better positioned to help protect our customers' most valuable asset -- their data."
"We will also be better positioned to offer our channel partners more innovative and profitable products to sell to their customers," added McNulty. "CipherTrust's unique reputation based security technology, TrustedSource, will further differentiate us by delivering the industry's first reputation-based firewall/UTM, web gateway and identity and access management solution."
To combat the real business risks posed by the growing number of messaging security threats, CipherTrust pioneered the messaging security appliance market and created an innovative, layered, policy-based appliance to protect multiple communication channels, including email, instant messaging, Webmail, file transfers and HTTP. CipherTrust's family of products are created to meet the specific needs of organizations of all types and enable those organizations to reduce costs and mitigate the risks that are associated with all forms of electronic messaging.
"We are excited to be joining forces with Secure Computing," said Jay Chaudhry, CEO, chairman and founder of CipherTrust. "This transaction brings together two very successful companies that together can redefine enterprise gateway security."
"The synergies between the two companies are tremendous," said Chaudhry. "Our products and technologies are complementary, our channel and selling strategy similar but with little overlap in channel partners, and our teams have strong domain expertise in security with an established record for delivering innovative products. Our combined business will bring focus and innovation of a start-up and the scale, size and financial strength of a larger company."
"Secure Computing's merger with CipherTrust addresses the convergence of threat and messaging management gateways," said Chris Christiansen, Program Vice President of Security Products and Services at IDC. "CipherTrust's messaging security complements Secure Computing's focus on Unified Threat Management, Web filtering and hardware authentication. With messaging increasingly viewed as a critical enterprise application, the ability to secure traffic at wire speeds is a critical business enabler. Moreover, CipherTrust's TrustedSource reputation technology, with its network of thousands of sensors throughout the Internet, will add a new element of sophistication and intelligence to existing UTM and SCM products."
The combined company will be positioned to be the leader in the enterprise gateway appliances market. This will include a comprehensive, integrated and unified portfolio of solutions -- ranging from UTM, messaging security, Web filtering and identity management -- with centralized policy and management capabilities. Together, these products will address network gateway and application gateway security for all the major Internet protocols including Web (HTTP and FTP), email (SMTP and POP) and instant messaging and identity based access protection.
Combined, Secure Computing and CipherTrust bring a common focus and highly innovative approach to security. Secure Computing's UTM and SCM appliances provide the full range of content protection features with world-class firewall, VPN, Web-filtering, and content filtering. CipherTrust's appliances provide total messaging security for inbound threats as well as outbound data leakage and compliance violations. Customers will no longer need to deploy and manage multiple disparate point products from multiple vendors.
Central to Secure Computing's technology focus is the ability of its Sidewinder G2(R), TSP and Webwasher(R) platforms to enable behavior-based "Zero-Day" attack prevention against previously unknown network attacks. CipherTrust extends this capability using global intelligence with its TrustedSource(TM) technology, providing the leading reputation system based upon real-time intelligence gathered from a worldwide network of thousands of sensors. Together, the combined company will be able to integrate the TrustedSource capability into these products to accurately protect against unknown threats.
The transaction will provide the opportunity to accelerate CipherTrust's revenue growth by utilizing Secure Computing's worldwide distribution channel. In particular, CipherTrust's products will receive greater exposure with the U.S. Federal Government and in internationally.
Together, the combined company will have more than 18,000 customers and 1,700 resellers in 106 countries. The company also will have greater opportunities to cross-sell all of its innovative products, including its Unified Threat Management and Identity and Access Management appliances to both current and prospective customers.
Together, Secure Computing will have an organization of highly dedicated professionals with substantial expertise in the security industry. In addition to Jay Chaudhry joining Secure Computing as the Chief Strategy Officer, two CipherTrust executives will become executive officers and members to the company's senior leadership team. Paul Judge will join the company as Chief Technology Officer, and Atri Chatterjee will be appointed Senior Vice President of Marketing.
The sales and marketing groups consist of security industry veterans, and the expected synergies between these organizations are expected to be powerful. The company will have a substantially larger research and engineering development team, and will be well-positioned to accelerate its development of new and innovative solutions.