Software Monetization Featured Article

Gemalto to Acquire SafeNet as Security Industry Becomes Latest Active M&A Sector

August 08, 2014

This has been by all accounts a very active year for merger and acquisitions (M&A) across almost every sector of the information and communications technology (ICT) industries. As large players look to fill in strategic gaps in their portfolios and as the trend of enterprises of all sizes seeking shorter lists of trusted vendors accelerates, there is little doubt that more M&A is on the way. And, while there have been periodic acquisitions in the cyber security area in the past several months, the announcement that Netherlands-based digital security company Gemalto NV has signed an agreement to purchase 100 percent of Belcamp, MD-based data protection and software monetization solutions provider SafeNet for US$890 million, is a blockbuster.  

The fit here seems natural as Gemalto (News - Alert) feels SafeNet’s network data protection capabilities, which include cryptographic systems used in cloud-based security and its licensing and entitlement management solutions, complement Gemalto’s authentications offerings.

Taking on the bad guys and protecting digital assets

As we read every day, those with malicious intent are themselves having a banner year, and this is heightening C-level concerns globally about the need for state-of-the-art protection. As Gemalto points out, this year alone we are at 400 million digital data records (not counting the 1.2 billion revealed this week at the Black Hat event in Las Vegas that Russian hackers have compromised) and the year is just past the halfway mark.

Details of the deal are as follows:

  • The purchase price of US$890 million is self-funded with US$440 million from available cash, and US$450 million drawn from existing long-term credit facilities.
  • The closing of the transaction is expected to occur in Q4 2014, after approval from the relevant regulatory and antitrust authorities.
  • Once the acquisition is completed, SafeNet (News - Alert) will significantly reinforce Gemalto’s Identity and Access Management business. It will become part of Gemalto’s Payment & Identity segment, and its Platforms & Services activity, that account respectively for €1,329 million (US$1,781 million) and €715 million (US$958 million) of the 2013 pro forma revenue.

SafeNet is one of the largest dedicated digital information security companies in the world. SafeNet technology protects over 80 percent of world’s intra-bank fund transfers and its 1,500+ employees, including 550 cryptographic engineers, serve more than 25,000 customers, both corporations and government agencies, in over 100 countries. In 2013, SafeNet revenues were US$337 million and profit from operations were US$35 million. Current guidance for FY 2014 is revenues of US$370 million and profit from operations of US$51 million for 2014.

For its part, Gemalto has reported FY2013 revenues of €2.4 billion (US$3.21 billion), and the acquisition is expected to add roughly 10 percent to profits in 2017.  In short, Gemalto will be a major force in the security industry with global reach and a very comprehensive solutions portfolio.

To the latter point, Gemalto explained that hardware security modules (HSMs) are the essential cloud-based secure elements generating and protecting the fundamental cryptographic keys and processing units used by digital authentication, encryption and signature mechanisms within computer networks and the Internet. It notes that these SafeNet capabilities will complement Gemalto’s offering of embedded software and portable secure elements used at the other end of the network security chain, i.e. in the users’ pockets and inside the network-connected terminals.

“The opportunity to acquire SafeNet has come at exactly the right time, as we have just entered into our new multi-year development plan and there is a perfect fit between Gemalto’s “security at the edge” and SafeNet’s “security at the core” capabilities. This will enable us to further accelerate the deployment of strong security solutions in the Enterprise sector, and expand our technologies and growth opportunities in protecting online access. Overall, our global leadership in digital security will be reinforced”, said Olivier Piou (News - Alert), Gemalto CEO.

“We are very excited for the opportunity to join Gemalto, which is recognized internationally for leadership in the digital security domain. Our products and routes to market are perfectly complementary and our visions for the future naturally intertwined,” said Prakash Panjwani, SafeNet President and Chief Executive Officer. “The combination of our portfolios will allow customers to have access to world’s leading security products for mobile and cloud, delivering best-in-class protection of data and identities. This transaction will accelerate the delivery of Gemalto’s security solutions to the Enterprise while also making SafeNet’s data protection solutions accessible to the Banking and Telecom sectors – truly a win-win for everyone involved.”

Much of the previous M&A activity in the security space has involved various large ICT companies like Cisco’s (News - Alert) acquisition of SourceFire for $2.4 billion in cash. Plus, there have been numerous small deals as the hunters snap up promising security startups. The Gemalto acquisition of SafeNet is amplification of the trends cited above regarding filling in gaps and shrinking short lists. It is also indicative of how security concerns are driving increased attention and valuations of companies with solutions that can take significant worry out of enterprise risk management challenges.

This is a hot sector in terms of growth opportunities hence the likelihood of further sector consolidation is going to remain high.  

Article comments powered by Disqus