Symantec’s MessageLabs Buy Aims for the Clouds

In a move to strengthen its position in Software-as-a-Service (SaaS), security player Symantec has purchased online messaging and Web security provider MessageLabs for about $695 million in cash.

The deal, expected to close by year-end, aims to enable Symantec (NASDAQ: SYMC) to improve its position in SaaS with offerings in key areas: messaging filtering and security. In particular, the security giant is looking to build on its Symantec Protection Network — a data backup and recovery service for SMBs launched in April 2007.

“This acquisition represents a natural extension of our current SaaS offerings and provides a strong customer base into which we can cross-sell our current online services — backup, storage and remote access,” John W. Thompson, Symantec’s chairman and CEO, said in a conference call.

Snapping up MessageLabs is important for Symantec, since it capitalizes on mounting interest in “security-as-a-service” among enterprises. Scott Crawford, an analyst at Enterprise Management Associates, told that the MessageLabs purchase is “a strategic acquisition for Symantec,” taking advantage of a technology seen as a cost-effective way for businesses to keep up with growing security threats, because they can offload such expenses to the service provider.

The deal also better positions Symantec to take advantage of another trend: the growing interest in cloud computing , although the concept has lately come under fire for creating confusion.

“Providing security in the cloud is getting more important, and MessageLabs tackles the major threat — messaging security,” Crawford said, adding that “a lot” of threats penetrate the enterprise through messaging, whether it’s e-mails, instant messages or exploited Web sites.

The most prominent recent messaging security problem was the hacking of vice presidential candidate Sarah Palin’s Yahoo e-mail account, for which 20-year-old Tennessee college student David Kernell has been indicted, three weeks after being named as a suspect.

The MessageLabs purchase also gets around a problem that has been haunting Symantec — creating a unified portfolio of products. “Symantec’s biggest challenge in the past few years was integrating its acquisitions,” Crawford said.

“Symantec made so many, beginning with Veritas, that bringing together a truly integrated portfolio has been a real issue,” he added. The MessageLabs purchase is different because “it is security as a service, there is already an existing market for this and it complements Symantec’s other services.”

Cash in the clouds?

Symantec’s purchase of MessageLabs could prove highly profitable. For starters, the company picks up a pool of MessageLabs’ users through the acquisition. MessageLabs has more than 19,000 clients for its online antispam and messaging security services — ranging from small businesses to Fortune 500 companies — and services more than eight million end users in all, Symantec said in a statement.

Additionally, Symantec’s Thompson cited market estimates from analyst firm IDC, showing messaging security will have a compounded annual growth rate (CAGR) of 15 percent. Worldwide sales of messaging security offerings will surge from the $2.4 billion chalked up in 2007 to $5 billion in 2012, he said.

“Together, Symantec and MessageLabs will have more than two times the market share of our nearest competitor,” Thompson added. “MessageLabs is the leader in the largest and fastest growing segment of the messaging market — hosted services — with 30 percent market share and a CAGR of 32 percent, according to IDC.”

The acquisition also will give U.S.-based Symantec a foothold in overseas markets. James Beer, Symantec’s executive vice president and CFO, said during the conference call that about 63 percent of MessageLabs’ revenue comes from Europe, the Middle East and Africa, while 28 percent came from the U.S. and nine percent from the Asia-Pacific region.

Because most of MessageLabs’ business is billed monthly and its service contracts renew automatically unless written notice is otherwise provided, “we believe MessageLabs gives us another predictable and growing revenue stream,” Beer said.

News of the deal sent Symantec’s prices up 43 cents, or 2.87 percent, to $15.43 by 2:05 p.m. ET.

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