CyberGuard CEO Aims To Outflank Competitors With SnapGear Acquisition

CyberGuard announced Thursday that it had signed an agreement to acquire the privately held $8 million Australian maker of firewall/VPN security appliances.

"We're putting our foot in the backyard of Cisco and NetScreen," said CyberGuard President Pat Clawson. "We want to be able to compete on every transaction with a better product offering." SnapGear has eight firewall/VPN products ranging from $350 to $1,100, while competitors are offering only one to three products, said Clawson.

CyberGuard shares were down 4 cents to $9.20 late in the day following the announcement.

SnapGear, which has 42 employees, will operate as a subsidiary. All of the employees and top management will remain at the company, said Clawson.

The deal provides CyberGuard, a $35 million maker of enterprise firewall/VPN products, with a robust channel targeting small and midsize businesses, said Clawson. "We have the high-end gear and from time to time we were finding ourselves on the outs because we we didn't have an edge of the network firewall," he said. "Now we have a far more secure solution at the core and a far more broad offering at the edge."

CyberGuard's strategy is to offer solution providers a broader, more aggressively priced product line with better margins to "outflank" competitors, said Clawson. "We're certainly going to be aggressive on the price and margin side," he said. "The real advantage to VARs is a broader and different offering than everybody selling Cisco and NetScreen."

Another advantage is SnapGear's technology, including its embedded Linux security in its appliances, said Clawson.

CyberGuard said the purchase price was calculated at approximately two times revenue for the trailing 12 months. Of that amount, $1.6 million will be in cash and the remainder in stock. There is an additional earn-out potential of $3.2 million in stock. Twenty-five percent of that is realizable if SnapGear revenue reaches a minimum threshold of $12.5 million in the first 12 months after closing; the remaining 75 percent of the potential earn-out would be prorated for achieving revenue between $12.5 million and $15 million during that period.

CyberGuard plans to maintain the SnapGear name through June 2004 as SnapGear by CyberGuard. After June, the SnapGear product will be referred to as SG. The plan is to fully integrate SnapGear's offerings into CyberGuard's next-generation central management product, said Clawson.