CipherTrust: Big Plug For Secure Computing's Hole

CipherTrust, however, is a rock star in the messaging security market. Founded in 2000 by serial entrepreneur Jay Chaudhry, the Georgia-based company has built an impressive $50 million business around basically one product, the award-winning IronMail e-mail firewall. In the past two years, the company has augmented the appliance's capabilities by adding instant messaging security and TrustedSource, a system that rates an e-mail's source to guard against phishing and viral attacks.

"Combined, we think we have a company that goes together hand-in-glove. And the technology that brings to the party will help us differentiate our existing product line, in addition to adding the capabilities of adding CipherTrust technology to the mix," says Secure Computing CEO John McNulty in a channel exclusive with VARBusiness. "We see the potential of building a powerful enterprise gateway security company."

Technology and market analysts were quick to dismiss the $274 million acquisition announced early this month. Between a poor second quarter and the diluted valuation of its outstanding shares, Secure Computing's stock has plummeted by nearly half. According to IDC, the digital messaging security market is expected to grow upward of $1.7 billion annually by 2008. So it's easy to see why Secure Computing would spend $274 million—nearly three times its 2005 revenue—to snap up CipherTrust.

"When John and I compared notes at the RSA Conference, we saw such a wonderful synergy between the two companies, and that our combination could create the leading, independent security company in the market," says Chandhry, who will become the new company's chief strategy officer.

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The deal gives CipherTrust a broad channel outlet for distributing and selling its product. Partners say that CipherTrust's fledging channel program was inconsistent and lacked leadership.

"It's a great thing for CipherTrust from a channel perspective, because they've lacked strategy and leadership," says Holly Thillet, executive vice president for the East region at FishNet Security in Alpharetta, Ga. "They really haven't had a channel strategy. Secure will definitely bring them that."

CipherTrust's channel program consists of roughly 180 partners in North America, plus a spattering of international distribution agreements. Though it was slowly turning the corner from a direct to indirect sales model, most of its revenue comes direct from enterprises. Secure Computing, meanwhile, has 1,700 partners globally, of which only 100 overlap with CipherTrust's. Since Secure Computing offers a specialty security technology—a highly complex offering that requires more touch than competitive products by Cisco Systems, Check Point and Juniper—the addition of an e-mail security appliance will give partners something new to market.

"Secure Computing is becoming a security solution provider," says Mark Sollazo, president and CEO of Synercomm, a networking and security VAR in Green Bay, Wis. "We may not represent their solutions every time, but they give us a good gift bag to help solve our customer's business pain."

NEXT: Examining the deal's true potential. The CipherTrust acquisition is the second major deal for Secure Computing in the past year. Last summer, Secure Computing was locked in a takeover battle with one-time rival CyberGuard, which had made an unsolicited $260 million offer to acquire Secure Computing. Instead, Secure Computing turned the tables and bought CyberGuard for $277 million.

When the CipherTrust deal closes, Secure Computing will have more than $200 million in revenue annually, with nearly the combined revenue of SonicWall and WatchGuard Technologies.

Although the new company is carrying a heavy debt load, it has a lot of fire power and market reach. Twenty percent of its revenue is comes from U.S. federal sales, and 45 percent from international markets. With nearly 20,000 customers, McNulty sees tremendous potential for marketing CipherTrust's products and expanding Secure Computing in the unified threat-management (UTM) space.

From a technology perspective, though, Secure Computing has a lot of work to do. The sweet spot for UTM is with SMBs, though Secure primarily competes against Check Point Software Technologies, Fortinet and Juniper. And, while Secure Computing is testing the benefits of adding CipherTrust's TrustedSource technology to its Web filtering software, there doesn't seem to be much synergy between IronMail and the SidewinderG2 firewall.

"CipherTrust is a cool company, but it doesn't seem like Secure Computing's company," says Eric Ogren, a senior analyst at the Enterprise Strategy Group. "I'm not sure if they can make a sum of the parts from the acquisition."

For one, IronMail is an enterprise product, so Secure Computing will have to create a scaled-down version for the midmarket if it wants to go downstream. And if it enters the midmarket, it will encounter SonicWall, which recently bought MailFrontier to augment its messaging security offerings. Secure Computing could create a unified management console for the e-mail and firewall products, but that would most benefit its enterprise customers.

"It's a bad deal from a market perspective, because it can only slow CipherTrust down at a time when consolidated messaging it hot," Ogren says. "The channel perspective is nice, but I don't think CipherTrust was losing deals because they couldn't find them. I can't picture anything that comes up to be a combined customer benefit."

Partners disagree. Their customers are asking for UTM products, which typically don't include e-mail and messaging security. If Secure Computing can combine CipherTrust's e-mail security technology with the CyberGuard UTM device, it could become more competitive in the growing UTM market.

"Customers are on the second-generation of e-mail protection. The first time they bought whatever they needed; now they're starting to get smarter and going in with a new set of technologies," FishNet Security's Thillet says. "CipherTrust makes all of their money in the enterprise, and the growth is getting downstream."