Websense (WBSN) announced a tender offer to acquire SurfControl for roughly $400mm, about a 40% premium to SurfControl's share price on the London Exchange yesterday. This deal is interesting for a number of reasons:
- Websense is taking out a fierce competitor -- The URL filtering market has become ultra-price competitive as functional parity has set in. SurfControl is an able competitor, and by acquiring them, Websense removes a potential aggressive discounter from the market.
- Expansion of the global footprint -- International expansion is a major priority for Websense and SurfControl gives them that [49% of revenues come from OUS as of the March Q]
- Entree into the email filtering market -- This is a marked change of direction for Websense, having eschewed the email filtering business in the past. But acquiring SurfControl is as much about its recently acquired BlackSpider email products as it was about synergies from combining the legacy URL filtering businesses.
- Entree into the on-demand, SaaS environment -- Websense has long sold its solutions as a subscription; but it's largely been delivered as an on premise solution. BlackSpider provides email filtering and other security functionality in an on-demand environment; and is SurfControl's fastest growing business.
- Cash flow guidance is impressive, if attainable -- Websense believes SurfControl can generate an incremental $50mm in operating cash flow by 2010. If accurate, the company is paying just 8x OCF estimates [looking ahead two years].
The security market reminds me a lot of the business intelligence market a few years ago. The industry is maturing and the big players [Symantec, Trend Micro, McAfee] are looking for ways to grow their businesses and increase shareholder value [read: consolidation and increased M&A]. Many industry analysts questioned whether Websense and SurfControl were well positioned to compete against the larger vendors without margin concessions. Does this combination hint at desperation? Or is this a bold move that gives the combined entity market presence and a better position at the negotiating table? I'm curious to hear your thoughts; I have my opinion on the matter.
Note: This is not a
recommendation to buy or sell WBSN, SurfControl or any other security, but is merely a
personal analysis to foster discussion for informational purposes only.
At the time of this writing, I and/or funds I maintain discretionary
control over, did not
maintain a position (long or short) in MFE, SYMC, WBSN, Trend Micro or SurfControl. We also may, at times, carry derivative options on underlying
positions as a hedge.
websense surfcontrol synergies m&a filtering investing woodrow enterprise+irregulars