Still half full on Secure Computing/CipherTrust

Boy, Secure Computing is taking a pounding today. Stock is way down and a couple of vociferous Wall Street analysts are really beating them up. This story (link here) on SmartMoney really sums it up. Pain, unless you were short the stock.

Richard Stiennon is jumping on as well, both in his Threat Chaos blog (http://blogs.zdnet.com/threatchaos/?p=369) and in the comments section here at Security Incite. Since my RSS reading friends usually don't check out the comments, here's what Richard had to say:

Your insight as an insider is better than mine Mike but I have a few doubts. While Secure is one of the most experienced at integrating acquisitions they may be trying to swallow too large a kangaroo here, especially with the big bulge of CyberGuard still being digested. Financially the company could be getting too deep in debt to recover. As to the talent sticking around I highly doubt anyone would last longer than their vesting period. They have been slugging it out for five years, missed a few market opportunities, and are probably tired. Meanwhile, Atlanta seems to be heating up with new startups, new financings, and other activity in the security space. While I have infinite respect for Jay, I cannot believe he is going to last as a chief anything officer in a publicly traded company. He is too much of an entrepreneur to put up with big company BS. -RS

The risk here is execution risk, not market risk. When you see a lot of deals you get both flavors, which dramatically reduces the likelihood of success. But there is definitely a market for "enterprise gateway security" and Secure has the pieces to play. The real question is do they execute? Of course, the CyberGuard experience does not give me warm and fuzzies that they will.

But CyberGuard was a different animal. There was tremendous product overlap, so then you have to deal with reconciling the technology and figuring out how to migrate customers to a new platform. Maintaining both products over time makes no sense. There were also channel issues and that's always a challenge. They did not execute on integrating CyberGuard. It's a simple as that.

Richard is exactly right in pointing out the personnel risk of the CT folks. Many of my friends over there are tired. 5 years at that pace feels like a lifetime. I wouldn't say the ATL is "thriving" but there is a bit of activity and many of those folks are start-up types. So it's a real risk that the brain trust of CT goes away sooner rather than later. But just as many folks are excited about the idea of playing in a bigger arena.

And of course, it seems that Wall Street's biggest issue is the economics and profitability impact. That's what those folks are paid to worry about. But I look at it a bit differently. Secure MUST pay attention to CT and work hard to unlock the value. It's a bet the company move. They are now highly leveraged and we know how a lot of those LBO's of the late 80's worked out for folks that didn't execute. If they bought something small, they could neglect it and bungle it with no impact. That's not an option here. If he doesn't get this right, McNulty (SCUR CEO) will be out on his ass. That's a fact.

So we'll see. There are lots of reasons not to like this deal. I could definitely be eating my words sooner rather than later. But I'm a bold guy and I like bold moves. This was a bold move - for both companies.