SafeNet Reaches For The Rainbow

SafeNet, Baltimore, offers hardware, software and managed services for security. Its products are sold to large financial institutions, midsize businesses, OEMs and consumers.

Rainbow, Irvine, Calif., offers a variety of software and hardware products for authentication, VPNs and cryptography, including cryptographic accelerators. It also offers antipiracy software. Rainbow's government business is valued at about $70 million. Its anti-piracy business accounts for about $40 million.

At least one security-focused solution provider said he has not been particularly impressed with SafeNet.

Ron Segal, president of Fairfax, Va.-based Spectrum Systems, which provides network and security application development primarily to the federal sector, said he had looked at partnering with SafeNet but chose not to because SafeNet is better known among OEMs than with end-user customers.

Still, Segal said the deal is yet another example of consolidation that he believes will continue as security players strive to fill gaps in their product portfolios. "We have half the number of manufacturers we did a year ago because they're all getting acquired," said Segal. "I think the industry needs it. You need companies that can make big investments [because] nobody can be good at all the pieces [of security]."

SafeNet acquired Cylink in February.

When the deal closes, SafeNet shareholders will own 57 percent of the new company.

SafeNet's stock dropped more than $9, or nearly 22 percent, in the first 10 hours after the announcement. Earlier in the week, Wachovia Securities had cut SafeNet's rating from market performer to underperform.

SafeNet and Rainbow executives were unavailable for comment.

ELIZABETH MONTALBANO contributed to this story.