Security Watch | Matt Hines » Sophos may IPO in February

January 17, 2008 | Comments: (0)

Sophos may IPO in February

TAGS: Security

Anti-malware vendor Sophos has not abandoned its long-rumored plans to launch an initial public offering of its stock, and the company may move forward with the transaction as soon as mid-February, according to industry sources.

The U.K.-based security provider had recently been rumored to have shelved its long-rumored IPO aspirations based on the volatility of international stock markets and lingering questions over the ability of technology providers to launch successful offerings in the current economic environment.

However, sources close to the company confirmed to InfoWorld on Thursday that Sophos is still seriously considering a launch of its stock on the U.K. exchange, and that it may execute its IPO as soon as mid-February, before the timeframe for its current regulatory filings to launch such an offering expire.

Sophos filed its "intent to float" IPO paperwork in the U.K. in December 2007, and the window of time allotted by those documents will run out before the end of next month. Alternately, the company could still decide to re-file for an IPO at a later date, sources said.

According to some industry estimates, if the company is successful in undertaking the stock offering it could generate a market capitalization of $900 million or more.

Sophos has long been considered a second-tier provider of anti-virus applications and other malware and spam-fighting tools, competing with peers such as Kaspersky Lab and Panda Software to steal business away from larger rivals including Symantec, McAfee and Trend Micro.

But company officials -- and market watchers including IDC (owned by InfoWorld parent IDG) -- maintain that the firm is now the world's largest privately-held security vendor, positioning it somewhere between those two groups in terms of its overall size.

By producing smaller packages of electronic virus signature updates and delivering them to customers faster than its rivals -- and integrating newer security tools such as network access control into its flagship endpoint protection products -- the company has been able to grow its business rapidly over the last several years, Sophos officials maintain.

Company officials have said publicly that the firm experienced revenue growth of approximately 23 percent for its last fiscal year, which ended in March 2007, and enjoyed 30 percent growth during the first six months of its current fiscal calendar.

Industry analysts Gartner have also placed Sophos alongside its larger competitors as a leader in its latest "Magic Quadrant" market reports covering the security market.

In the past twelve months, the security company has won several high-profile deals with major U.S. customers, including an agreement to supply software to protect 350,000 users at industrial giant GE, and a 100,000 seat contract with the Miami-Dade County Public Schools -- where it reportedly replaced McAfee products.

Company officials have cited growth of Sophos' business in the U.S. as one of the firm's top priorities over the last several years.

According to a recent report filed by industry analyst firm The 451 Group, based on Sophos' published fiscal 2006 numbers and statements about the company's fiscal 2007 performance, if the company's IPO is successful it could net a market capitalization as high as $1 billion.

"That's still a far cry from its next nearest competitor, Trend Micro, but is a nice kitty with which to fuel its growth and product development all the same," the 451 Group analysts wrote in the report.

The experts suggested that Sophos could use any cash gained through its offering to grow its sales and marketing efforts and to acquire other companies – possibly in the data leakage prevention (DLP) space, where many other security vendors including McAfee, Symantec, Trend Micro and RSA have made acquisitions over the last year.

Getting into DLP, the analysts said, could serve to ease concerns of some large enterprise customers who are already doing business with the firm, or considering deployments of its products.

If the company decides not to push forward with its IPO, it may seek to be acquired by one of its larger rivals or by a major IT platform provider, in the same manner as e-mail scanning specialist Postini had been rumored to seek a stock offering before it was snapped up by search giant Google during 2007.

Among the potential suitors for the company could be Microsoft, according to the report.

Reached for comment on Thursday, Paul Roberts, one of the 451 Group analysts (and a former InfoWorld reporter) who authored the report, said that a strong IPO could help the firm establish an even larger presence on the security market, in particular with enterprise customers.

"Sophos' decision to move forward with an IPO sums up the confident attitude of a range of smaller anti-malware players that are prospering from the continued proliferation of online threats and from vendor fatigue with the 'big two' IT security firms: Symantec and McAfee," Roberts said.

"A publicly traded Sophos will still be much smaller than its nearest publicly traded rival, Trend Micro. But an IPO helps Sophos in a number of other ways," the analyst said in an e-mail. "It gives the company the resources it needs to fuel sales and marketing growth and to pursue development of technologies like [DLP] and [hosted security services] at the same time. Sophos also gets the credibility that comes with being a publicly traded firm, which could help it win some larger accounts."

However, even if Sophos does have a successful IPO, Roberts noted in his report, that would not guarantee that its stock would continue to perform well.

The analyst pointed out that one security company that launched a successful IPO in 2007, intrusion detection specialists Sourcefire, has seen its share value fall by nearly 50 percent since its stock hit the market at $15 per share last March.

Posted by Matt Hines on January 17, 2008 01:36 PM

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