On 12 June, 2016 Symantec announced its agreement to acquire Blue Coat for USD 4.65 billion.
As a result of this acquisition, the company will now have 385,000 customers, a vast repository of data sources and over 3,000 researchers and engineers worldwide. Post this acquisition, Symantec will have USD 4.4 billion in combined revenue (on pro-forma, non-GAAP basis) in FY16. By the end of FY18, Symantec expects to realise USD 550 million in run-rate cost savings. In addition, the combined entity will have access to vast Security and Threat Intelligence data sources including Telemetry gathered from 175 million protected endpoints; more than 2 billion emails scanned per day; 1.2 billion web requests monitored per day across 55 languages; 12,000 Cloud applications monitored and controlled.
At Greyhound Research we believe this announcement is significant since Symantec will now protect over 10% of the world’s Data Centres. Per Greyhound Research estimates there are currently nearly 650,000 operational Data Centres across the globe and Symantec will now be managing Security for over 64,000 of these.
Worthy to note, this announcement comes after the company’s decision to de-merge Veritas. Blue Coat is Symantec’s largest acquisition since July 2005 when it acquired Veritas for USD 13.5 Billion. Greyhound Research believes the Veritas acquisition proved to be a costly one for Symantec resulting in a loss of USD 6.1 billion – only recently (January 2016) the company sold Veritas to The Carlyle Group for USD 7.4 billion. This demerger has added pressure on Symantec (given its standing of a major player in the Enterprise Security market) to prove value from its Blue Coat acquisition and restore confidence.
Having said that, we believe there is ample good news packaged in this latest announcement. Of the many, one that stands out is the decision of Bain Capital, a majority shareholder in Blue Coat, choosing the Merger & Acquisition (M&A) route and deciding to reinvest USD 750 million in the combined Symantec Blue Coat company. It’s critical to note that this is a significant change in strategy by Bain Capital that had earlier announced its intent to take Blue Coat public this year. Also, as part of the announcement, technology-focused PE firm Silver Lake has agreed to double its investment in Symantec from USD 500 million to USD 1 billion.
At Greyhound Research we believe this investment is defining in nature for both, Symantec and the global Enterprise Security market. Below are five reasons why Greyhound Research believes this announcement matters to the CIO’s office:
It’s the second largest acquisition in the history of Enterprise Security. This acquisition is the second largest M&A transaction in the history of Enterprise Security, second only to Intel’s acquisition of McAfee for USD 7.7 billion in 2010.
Greyhound Research believes this acquisition comes in at a time when the Security vendor landscape is witnessing a critical change – most significant of them all is the possible sell of McAfee by Intel. Separately, CIO and CISO demands from security vendors are rapidly evolving beyond the traditional Threat landscape to the need to manage sophisticated cyber-attacks. This change is adding immense pressure on vendors who are either resorting to partner with other vendors or scout for sizeable acquisitions to fill product gaps. We believe the acquisition of Blue Coat gives Symantec an edge over its competition on accounts of depth and breadth of offerings in Cybersecurity. At Greyhound Research we believe acquisitions like these can help CIOs better manage Security for their enterprise with fewer vendors who are dedicating sufficient resources to the cause of Enterprise Security and in particular Cybersecurity.
Symantec now has a new CEO with a brilliant track record. Upon closing of the transaction, Blue Coat CEO Greg Clark will become Symantec’s next CEO replacing Michael Brown. Greg has over 23 years of leadership experience, security expertise and M&A experience and his appointment helps solve the company’s pending ‘No CEO’ issue.
Greyhound Research believes this is a step in the right direction and under Greg’s leadership the company expects to stay focussed on Cybersecurity. With reins of the company in such capable hands, CIOs can expect innovative products from Symantec’s corridors. However, with this position having changed multiple hands in the past on account of revenue troubles, Greg will have to tread cautiously to regain customer, partner and investor confidence.
The combined entity has a comprehensive product portfolio. In addition to its current offerings (Endpoint Protection, Data Loss Prevention, Email Protection among others), Symantec will now have access to Blue Coat’s Web and Cloud Security Management products like Secure Web Gateways, Web Application Protection products, Encrypted Traffic Management products, Content and Malware Analysis tools among others. Hence, Symantec will now be able to offer Core Network Security coverage as well. Also, while Symantec has been strong in protecting Endpoints, it did not have coverage in the Secure Web Gateway segment which is Blue Coat’s strength.
Greyhound Research believes as a result of this acquisition CIO’s Total Cost of Operations (TCO) can potentially reduce over a period of three to five years on account of four key factors: purchase more of the company’s products at smaller additions to their existing Enterprise Agreements, hence potentially buy more for less; fewer vendors to manage thereby expected reduction in vendor management costs; tighter integration between Symantec and Blue Coat products over time hence potential reduction in need and cost of third party integration; potential reduction in support costs. To cite some examples, Blue Coat’s ProxySG Secure Web Gateway can potentially be integrated with Symantec’s Endpoint Security product and Blue Coat’s Web-Access Firewall can be an add-on product for Symantec’s existing installed customer base.
A new ally to manage security policies and compliance. This acquisition gives Symantec a play in the Cloud Access Security Broker (CASB) segment, a market where the company has until now enjoyed zero footprint. To better understand why this matters to Symantec, it’s critical to mention Blue Coat’s journey so far in this segment. In 2015, Blue Coat acquired two CASBs, Perspecsys (Tokenisation technology to protect corporate data on the Cloud) and Elastica (SaaS Monitoring and Usage Analysis). Blue Coat then integrated offerings from both and added a new CASB product to its product portfolio, Advanced Web & Cloud Security.
At Greyhound Research we believe CIOs choosing to work with Symantec in the CASB segment need to assess the company’s skills and expertise (to sell and service) in their region. Also, with entry into this new segment Symantec will now become competition to CASB players some of who are existing Symantec partners (like Microsoft an existing Symantec partner acquired CASB Adallom in 2015). Greyhound Research believes CIOs choosing to move to Symantec’s CASB must understand the migration process and be prepared to manage complexities (if any) arising thereof.
A promise of providing cover for complex Cybersecurity threats of the future. Symantec’s revenue is distributed across two segments, Consumer Security (46% of FY16 Net Revenue) and Enterprise Security (54% of FY16 Net Revenue). Per Greyhound Research analysis, revenue share from Symantec’s Consumer Security offerings (Norton Antivirus Suite) has been decreasing due to an influx of similar free or freemium offerings by AVG, AVAST, Kaspersky, Malwarebytes among others. However, with the Blue Coat acquisition, 62% of Symantec’s revenue (USD 2.7 billion) will now come from its Enterprise Security offerings. Also, the Symantec Blue Coat acquisition will result in a combined staff of 3,000 engineers and researchers and nine Threat Response Centers.
The Threat landscape is constantly evolving and becoming increasingly complex. Greyhound Research believes forward looking CIOs must invest in a security partner who is committed to cause of Enterprise Security and has the resources to invest in Threat R&D and Threat Intelligence. Greyhound Research is of the opinion that the Blue Coat acquisition lends Symantec the necessary focus and the resources for it to invest more muscle in research, analysis and generation of a vast amount of Threat Intelligence data. This solidifies Symantec’s competitive stand against other players such as Palo Alto Networks, FireEye, Check Point among others.
With enterprises implementing Virtualisation, moving their workloads to the Cloud and launching enterprise-wide Mobility initiatives, they are opening themselves to complex Security threats.
This evolved Threat landscape is deeming enterprises to invest in sophisticated Security architectures and focus energies on managing cyber-attacks to ensure control of corporate data at all times. Greyhound Research believes Symantec’s decision of investing its corpus funds into the Blue Coat acquisition is directly aimed at solving the need for enterprises to manage such new-age, complex threats. Also, if managed well, this acquisition has the potential to help Symantec meet its goal of scaling up, expand footprint and drive innovation in the global Enterprise Security market.
What’s your Standpoint?
Do you think this acquisition is a game-changer and will infuse innovation in Symantec? As a CIO/CISO is Cybersecurity a key discussion point with your Board and other CxOs?
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