Equity Firm Pockets WatchGuard


Consolidation in the multi-billion-dollar security market shows no signs of
slowing down.


Equity firm Francisco Partners agreed to purchase struggling security device
maker WatchGuard Technologies, Inc.
 for $151 million in cash.


WatchGuard makes Firebox X, a family of upgradeable network security
appliances that protect data in companies of all sizes. WatchGuard machines
include a LiveSecurity Service subscription for vulnerability alerts and
software updates.


The Seattle company has fallen on tough times, hiring Wachovia Securities as
a financial adviser in April to explore its strategic alternatives.


In the May quarter, WatchGuard reported a net loss of $4.1 million on 12
cents per share, compared to a net loss of $1.3 million on 4 cents per share
in the previous quarter.


Around that time, Vector Capital Corp., which has a 9.4 percent stake in
WatchGuard, offered to acquire the rest of the company for $5.10 per share.
WatchGuard took no action, angering some investors.


Vector lowered its bid to $4.65 in June.


WatchGuard instead accepted Francisco Partner’s bid today to the tune of
$4.25 in cash per share, which is generous considering that WatchGuard
closed at $3.73 last night


Investors reacted positively to Francisco’s bid Tuesday morning, with shares
of WatchGuard up 41 cents to $4.14.


WatchGuard CEO and chairman Ed Borey said on a conference call he believes
Francisco’s offer is the right deal for shareholders, customers, partners
and employees.


“Since I joined the company two years ago, we have worked to execute a
strategy focused on building a stronger, more nimble provider of network
security solutions to the small- to medium-sized market,” Borey said.


“We believe that the transaction we are announcing today represents the
successful culmination of that effort.”


The purchase is expected to close in the fourth calendar quarter of 2006.


WatchGuard competes with Blue Coat Systems , Fortinet,
SonicWall  and Secure Computing in the rapidly
shrinking market for network security devices.


Appliances are becoming the preferred method of deploying security
applications; IDC estimates that 80 percent of all network security software
will be piped through an appliance by 2007.


Secure Computing  essentially became the market
leader when it acquired
CipherTrust earlier this month for $273.6 million in cash and stock.


EMC bid for
RSA Security in the final week of June.


In other acquisition news today, database maker Ingres moved to
expand its sphere of influence in Europe and the Middle East by purchasing
Thinking Instruments AG, a German services provider and reseller.


Financial terms of the purchase were not made public but the deal is the
first acquisition for Ingres since becoming an independent company in
November.


Also, application performance management startup Tidal Software acquired
Intersperse, which makes monitoring and management software, in a
private equity transaction.


Tidal said in a statement the combined software platform will help corporate
IT staffs manage applications as a business process.

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