Deal: SonicWALL Acquires MailFrontier

SonicWALL (SW) acquires MailFrontier for $31 million in cash. I was actually thinking this morning about how SW should buy Barracuda to both eliminate what will become a significant competitor and also to get exposure to a couple of good markets (email security, anti-spyware). Then figured the price for Barracuda would be too high, given they just took a bunch of VC money. So to see them make this move is interesting for what seems to be a fair price. Couple of things at work here:

1. This is a good deal for MailFrontier - These guys needed to get a deal done. The product works OK (all of the anti-spam gateways work OK), but their outbound filtering story was very weak. They were not competitive at the high end and getting eaten up on the low end by Barracuda. That kind of squeeze makes you less than viable very quickly. This is a good exit for them.
   
   
2. SonicWALL needs more stuff in the bag - SW has done a great job of building up their channel to go after SMB. Readers of Rants know I believe SMB is where all the action is, but the partners need to be able to drive more stuff once they sell the initial UTM box. MailFrontier provides another product, and also has technology that can be integrated into the UTM device over time. This is the same mentality that drove SW to acquire Lasso Logic in the backup space last year. It's a great model, they don't pay a lot for the technology in a hot market and drive it through their channel. That's called leverage folks.
   
   
3. Dance partners are going fast - There are still way too many email security vendors and not enough potential acquirers. You figure Cisco and Juniper need to have something at some point. Maybe McAfee will decide to give up the ghost on making their own stuff work and CA needs something also, but most likely software based. Beyond that, the ranks of interesting buyers get pretty small, so the remaining players in this space should be feeling some heat to get something done. Wait too long and you are standing on the side.
   
   
4. Valuations are going down - Symantec bought BrightMail at about 14x TTR (trailing twelve months) revenue back in 2004. This deal was probably in the 3x range, given IDC's estimate of MailFrontier doing $6.2 million in 2004 and reasonable growth in 2005. Clearly the luster is off the rose in this market space.

If you are a MailFrontier customer, breathe a big sigh of relief. The alternative was MUCH worse. SonicWall customers now have another product to look at, which is a good thing. But most importantly, viability is a CRITICAL selection factor for email security products now. Making a big investment with a marginal vendor will prove to be a big mistake, so choose carefully.