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Endpoint Security: Sophos Acquired In Private Equity Deal

The VAR Guy

May 4, 2010

The security software market continues to attract investors. The latest example: Apax Partners has acquired majority interest in Sophos, the endpoint security and data leakage prevention (DLP) software provider. The deal values Sophos at US$830 million, or more than three times annual revenues. Here’s a look at the agreement and the implications for solutions providers.

No doubt, Sophos has been in growth mode. And Channel Chief Christopher Doggett has been preparing an enhanced partner program that promotes recurring revenue opportunities to MSPs (managed services providers) and VARs. The VAR Guy hopes to dig for more partner program details during an anticipated meeting with Doggett on May 5.

Still, Sophos competes in a crowded market — where established giants like Symantec and McAfee are reaffirming their channel commitments; Trend Micro is building out more recurring revenue offerings; and upstart Kaspersky Lab has been growing like a weed.

Dollars and Cents

With all that competition in mind, Sophos was considering several financial moves. Sources say the company had kicked around a potential IPO in recent years but the recession sidetracked those plans. Fast forward to the present and the private equity route apparently offered less risk.

Enter Apax Partners, a private equity investment firm. Apax operates across the United States, Europe and Asia and has more than 30 years of investing experience. According to a prepared statement from Steve Munford, CEO of Sophos.

“Apax’s financial backing, combined with Sophos’s deep understanding of security and data protection is great news for our customers, prospects and partners. It is also a testament to the efforts of all those who helped bring Sophos to where it is today. ”

By the Numbers

Sophos is quick to point to some key milestones as part of the Apax agreement. According to a spokesperson for Sophos, the company has:

  • 20+ years of impressive performance, strong cash flow and 19% cumulative annual growth over the past 3 years

  • $260 million in 2010 revenues and double digit growth that is expected to outpace the market

  • #3 behind only Symantec and McAfee in Endpoint Suites

  • #2 behind only McAfee in Data Protection Suites

  • And Sophos has over 100 million users in more than 150 countries

  • In its fiscal year ended March 31, 2010 (unaudited), Sophos had billings in excess of $330 million (compared with $273 million in FY 2009), revenue in excess of $260 million (FY2009: $213 million) and generated unlevered free cash flow of approximately $55 million (FY2009: $40 million)

Next Moves

Still, there’s more work to be done. In a recent FastChat video interview, VP of Corporate Strategy Arabella Hallawell described a “consumption gap” in the endpoint security market:

Naturally, Sophos and Apax Partners hope to close that consumption gap.

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