Sophos Partners Hopeful, But Uncertain, About Apax Deal

Sophos executives say that the APAX partnership will provide the U.K.-based company with an infusion of capital, which would enable innovation and investment it otherwise might not have been able to afford.

"We have access to capital and investments that we haven't had before," said Chris Doggett, Sophos vice president of global channels. "All those things that we put in place a long time ago -- this acquisition allows us to continue those in spades."

Sophos announced earlier this week that it planned to sell off the majority of the business to Apax Partners for $830 million. Under the terms of the deal, Sophos founders Jan Hruska and Peter Lammer will retain a "significant minority" shares in the company.

The capital will allow Sophos to find ways to streamline business, develop e-commerce channels for its partners and further invest in new technologies, executives said. Plus, the guaranteed financial backing will also allow the company to expand its footprint in marketing and branding arenas.

"We can also do a lot of new things. We're rolling out many new platforms and tools. We can now pick up the pace of doing that," Doggett said.

Meanwhile, Sophos plans to further gain traction in the growing encryption and data loss prevention space, investing in products that are easily deployable and simple to manage, in an effort to make those technologies more accessible for a wider range of market segments.

"One of the big areas [of focus] has been one that will make (encryption and DLP) more deployable and more competitive," Doggett said. "Even companies with a 100 to 5,000 employees say they have on average between one and three staff dedicated to security. Even if you have three, they don’t' have the staff to do key management, to do DLP, which typically takes vast amounts of time."

Sophos executives say the capital will help prepare the company for accelerated future growth.

"We've grown much faster than the market. We're taking share from our competitors. We are in a very strong place, and we had choices about how we wanted to grow," said Arabella Hallawell, Sophos vice president of corporate strategy. "We found that APAX Partners are still as excited to grow the security company as we were."

Sophos reported $260 million in sales revenues for 2010, up from $213 million in 2009, and more than $330 million in billings, up from $273 million in 2009. The company also anticipates continued double digit growth.

Next: Channel Partners Voice Concerns However, growth strategy isn't necessarily channel friendly, partners say. Specifically, some partners said that they have strong concerns knowing that Sophos has an uncertain future in the hands of the venture firm, which will strive to get the most from its investment.

"We're all in this as capitalists to make money. At the end of the day, they're a venture fund. They're in this to make more money than they invested," said Michelle Drolet, CEO of Framingham, Mass.-based TowerWall.

Drolet said that thus far, Sophos hadn't contacted her about the acquisition or its implications for her business and the channel. "I have not personally been in the loop. I think it's still probably still kind of jelling from them," she said. "When organizations are gobbled up by big companies, we don't know where we're going to fall in their partner program. We need to be very cognizant of how we're going to be treated and how the communication is going to take place."

However, partners also said that the windfall of funding could give Sophos a much needed boost with marketing and branding efforts.

"I think it could be a good thing for Sophos. That type of funding would be needed to get them to another level," said Sean Stenovich, president of Dallas-based M&S Technologies. Stenovich said that the financial backing could help the channel by giving a boost to Sophos' marketing efforts and branding strategy.

"Now they can go out there and start doing brand awareness around their product. That part is where I see the biggest gain," he said, adding that he was not too worried about the deal "unless they decide to over-manage it or make significant changes on that side."

Drolet concurred that marketing was an area where Sophos had historically been weak.

"They haven't had deep pockets to do marketing. They have phenomenal technology, but their name is not known in the industry," Drolot said. "Maybe that will put them up with the Symantecs, McAfees and Trends. Maybe it will give them the leg up to compete better than they have in the past."

Executives contended that the acquisition would not negatively affect the company's channel strategy or program, and maintained that both Sophos and APAX were aligned in their values regarding the channel.

"We do not expect the channel strategy to change in any way. We expect we can do more and do it at a faster clip," Doggett said.

But partners say the proof will be in the pudding.

"Sophos has gone from direct to channel sales to direct to channel sales," Drolet said. "They're a great company and I think they're very channel-focused now. But it's a concern. How are the cards going to play out? Only time will tell."