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Sophos sells majority stake to private equity group

Michael S. Mimoso and Robert Westervelt, SearchSecurity.com Staff

Less than a week after Symantec's acquisitions of encryption vendors PGP Corp. and GuardianEdge Technologies Inc., the rash of consolidation in the computer security market continued Monday when Sophos agreed to sell a majority interest to global private equity group, Apax Partners.

Terms were not released, but the company is valued at $830 million, according to a news release. Minority shareholders TA Associates will also sell its full interest in Sophos to Apax. Sophos, which specializes in endpoint security

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and antimalware protection, said it had revenue in excess of $260 million as of March 31, the end of its fiscal year.

Apax Partners, meanwhile, focuses on five business sectors, including technology and telecommunications companies.

Sophos, based in the U.K., was one of the largest remaining standalone security vendors, trailing Symantec Corp. and McAfee Inc. for leadership in the endpoint security space, and McAfee in the sale of data protection suites, according to the Sophos release.

"As the market continues its migration from point solution to tailored, unified security suites, Sophos' strategy to offer the world's most resilient, cost effective solutions without any additional complexity remains key," said Sophos CEO Steve Munford, in a prepared statement. " Apax's financial backing, combined with Sophos's deep understanding of security and data protection is great news for our customers, prospects and partners."

"We identified the security software space as an attractive investment area for us given its rapid growth driven by ever increasing malware threats and high barriers to entry," said Salim Nathoo, a partner in the Tech & Telecom team at Apax Partners. "Sophos is a very strong platform and is gaining market share. Apax's strong track record and industry specific knowledge in the technology sector makes Sophos a perfect fit."

Sophos founders Dr. Jan Hruska and Dr. Peter Lammer will keep a minority share of the company.

TA Associates, which sold its full interest in Sophos to Apex, remains in the security space. The investment firm paid more than $200 million in 2009 for a stake AVG Technologies Inc.

Mergers and acquisitions are done for many reasons. Sophos customers should look more closely at how the company communicates its strategy and focuses its resources, said Jonathan Penn, a vice president at Forrester Research Inc. Selling a majority stake to a private equity firm could be a sign that the firm is gaining the financial resources it needs to expand the company, he said.

"They could be using this as a foothold to develop a broader security play," Penn said. "This could be good news for [Sophos customers] because there's some backing and financial resources to expand the portfolio and in the end that's going to make for a more stable and deeper partner."

Penn said Sophos was one of the first to expand beyond threat management at the endpoint to more proactive data protection. "They definitely have some praise on the ease of implementation, simplicity of management," he said.

Like many security vendors in this space, Sophos has had a difficult time competing against Symantec and McAfee, Penn said. The highly competitive market for endpoint security includes Microsoft, Trend Micro, Kaspersky Lab, and F-Secure, among others. Sophos has been "moderately successful," Penn said.

The challenge for Sophos has been to really stand out. The vendor has grown in market share by being the alternative to the top-tier vendors. "That's a difficult position to grow at the pace the rest of the market is growing," Penn said. "My perception is that Sophos hasn't been as aggressive in the large enterprise space and focusing more on mid-tier businesses."