FishNet, Accuvant Execs: 10 Things To Know About Our Merger

America's Largest Security Partners Get Even Larger

America's two biggest security solution providers -- FishNet and Accuvant -- agreed last week to come together, creating a $1.5 billion behemoth with 1,400 employees and 60 locations across North America.

Both companies have enjoyed enormous growth between 2009 and 2013, with Denver-based Accuvant, No. 48 on the CRN SP500, realizing a compound annual growth rate (CAGR) of nearly 32 percent and Overland Park, Kan.-based FishNet, No. 46 on the CRN SP500, achieving a CAGR of 22 percent.

FishNet CEO Rich Fennessy and Accuvant Co-Founder and Executive Vice President of Partner Solutions Dan Wilson both spoke with CRN about the deal. Here's what they had to say.

The Companies Have Been Talking About A Deal Since 2008

FishNet and Accuvant executives have been considering a merger since 2008, according to Fennessy.

"For many years, it was discussed as, 'Well, it would be amazing if we could bring these two companies together,'" Fennessy said.

That, however, didn't become possible until March when Blackstone, a private equity firm, acquired a majority stake in Accuvant, which had aspired to grow through M&A. Financing from Blackstone at last made that possible, Wilson said.

"We didn't have the capital before," Wilson said.

Serious conversations began shortly after Blackstone's purchase of Accuvant, Fennessy said.

Fennessy: I Was Brought In As CEO To Sell FishNet

Fennessy, a longtime IBM executive and former CEO of solution provider Insight, has overseen five M&A transactions during his career.

He said Investcorp, an international investment firm that bought a majority stake in FishNet in January 2013, brought him in as CEO in November 2013 to grow FishNet and get it ready for a sale.

Though financial details of the transaction were not disclosed, Fennessy said Investcorp sold its share of FishNet to Blackstone at a significant premium, thanks to the company's growth since early 2013.

"From my perspective, the job has been completed successfully," said Fennessy, adding that he gave Investcorp the exit they sought.

Accuvant And FishNet Similar, But Not Identical

As America's two largest security solution providers, Fennessy said both FishNet and Accuvant have meaningful technology resell and core consulting businesses, as well as many areas of shared expertise.

"Duplication is a good thing, because it means we have a deeper bench," he said.

Each firm, though, also has its niche specialties.

For Accuvant, Fennessy said that its LABS research arm examines complex technology issues around security, such as penetration testing and vulnerability assessments. And Fishnet differentiates itself with an identity and access management practice, and end-user security awareness training, Fennessy said.

All told, Wilson said each company has 50 to 75 different services it can provide.

Very Few Customers Buy From Both Companies

Despite their overlapping areas of expertise, FishNet and Accuvant share few customers. Of the 10,000 companies doing business with either Accuvant or FishNet, just 100 have $50,000 of transactions with both solution providers, Fennessy said.

Denver-based Accuvant has a strong presence in Canada and the Western United States, Fennessy said, while Overland Park, Kan.-based FishNet is strongest in the Central United States.

The companies are about equally strong In the Northeast, he said.

Wilson said the firms have a presence in 60 different cities.

The Deal's About Growth, Not Layoffs

FishNet Security and Accuvant are not looking to lay off employees as part of their merger, according to Fennessy.

"This is not a consolidation … to go do a lot of layoffs," Fennessy said. "This is a strategy of growth."

Fennessy said the combined company will need to grow its head count in order to take on new business. The combined company should continue to grow organically after the deal closes, Wilson said.

He noted that FishNet brought on 150 new employees in 2013 to drive top- and bottom-line growth.

"We're a people business, so we'll continue to add people," Fennessy said.

Accuvant CEO To Lead Company, Fennessy To Depart

Accuvant CEO Dan Burns will lead the combined company once the deal closes, which is expected to happen in the first quarter of 2015.

As for Fennessy, he plans to help Burns launch the new company, then leave around late summer, roughly six months after the transaction closes.

But other FishNet executives won't get short shrift when it comes to creating a new management team, Fennessy said. The new company will be built from the director team of both companies, although the exact organizational chart has yet to be determined.

The Deal Has Created A Destination For Top Talent

Both Fennessy and Wilson said it's been challenging to keep up demand for cybersecurity services.

"The demand is outstripping supply in terms of skilled talented people," Wilson said.

As a combined company, Wilson said they will be able to afford investing in their workforce to provide broader and deeper sales and service expertise.

Specifically, Fennessy said the joint company plans to invest heavily in attracting top talent from colleges around the globe, showcasing their technology on university campuses. Once the deal goes through, Fennessy expects recruiters to have a much easier sell.

"We've become the destination location where people want to work," Fennessy said, "because we're the clear market leader."

The New Company Will Expand Its Managed Services Practice

Much of the increased customer demand has been concentrated in managed services, where FishNet's business is up 170 percent in recent years. Fennessy said this has led to customer backlogs, however, resulting in a two- to three-month wait for FishNet's new clients.

Wilson said the combined company will expand and differentiate its capabilities in the managed security services space to fulfill increased demand.

Fennessy said enterprise businesses no longer have the budget needed to handle security needs in-house. They've, therefore, looked to leverage third-party companies for around-the-clock monitoring and management. Providing that service, however, is cost-prohibitive for all but the largest of companies, he said.

Scale Vital When Combating Advanced Threats

Leveraging scale and collective expertise has become increasingly valuable for security firms as the threats have become more complex and intricate, Fennessy said.

"Attackers are getting a lot smarter," he said.

Fortunately, Wilson said CEOs and chief information officers are becoming more aware of advanced persistent threats (APTs) and the impact a data breach would have on their businesses, and have turned to companies like Accuvant for help.

Both firms have attempted to leverage security operation centers (SOCs) to combat new threats. FishNet opened its second in Atlanta last year, while Accuvant opened its first in the Baltimore-Washington, D.C., corridor in 2013. The merger will provide additional SOC redundancy, Fennessy said, and allow the companies to tap into new labor markets.

The New Company Might Expand Into Europe or Asia

The companies have virtually no physical footprint outside North America. Accuvant's operations are solely in the United States and Canada, while FishNet has a London office, but it accounts for just 2 percent of the company's revenue.

But the client base for both solution providers consists primarily of multinational Fortune 500 companies, which have increasingly been seeking security assistance for their European or Asian operations.

Fennessy anticipates any expansion into Europe and Asia would be done via merger or acquisition, since it's hard to grow organically from scratch.

Wilson estimates the new company takes up just 3 percent of the $70 billion security market, meaning it still has room to grow.