Pointsec

This morning Check Point announced a deal to acquire Protect Data, better known as Pointsec, for about $586 million in cash (here). At first glance, this is a good deal for Check Point, a better deal for Pointsec, and puts Check Point right in the middle of one of the hottest markets out there - mobile data encryption.

First, Check Point has done SOMETHING, so that is good. Most have just assumed that Check Point would continue milking their installed base and continue going nowhere fast. This at least shows definitive evidence that Gil and Co. are still working for a living. Acquiring Pointsec, which is headquartered in Sweden, was also a good move because it takes US regulators out of the critical path. It's not clear that regulators would continue to be an issue (since Alcatel/Lucent was just approved by the US President himself) for Check Point to buy US companies, but why take the risk?

Second, the deal feels a bit pricey. $586 million on what will likely be around $75M or so in 2006 revenues is a 7-8x multiple on sales. It represented about a 40% premium to where Protect Data's stock was trading in Sweden (UPDATE: the premium is on the average price over the past 90 days - the premium is nil to where the stock trades now). The Pointsec business (which is about 90% of Protect Data's revenues) is growing over 90% year over year. But we all know that the law of large numbers kicks in (Check Point is only expecting $90 million in 2007 revenue impact), so maintaining that type of growth rate will be hard.

Let's look at the market for what Pointsec does. Clearly, given all the laptop and PDA thefts that resulted in private data loss (and the resultant notification efforts) in the news, this is a hyped-up market. Given Pointsec's run rate, they are moving a lot of units to meet demand. This is one of the few security markets where customers are buying first and thinking (and architecting) second, which makes sense given the pain of the notification effort (VA anyone?). Pointsec's technology has always been well regarded and the market will continue to show good growth.

It was mentioned in the press release that Pointsec gives Check Point exposure to the "data security" market, and that's an interesting thought. Protecting data is different than protecting the infrastructure, and it will be interesting to see how Check Point goes after the data security market. Will they look at application security oriented solutions next? Or something in the database security space? To be clear, mobile encryption is not data security, but it's certainly closer than a firewall.

What about leverage with Check Point's existing business? Clearly there is quite a bit, since I've said for a while that mobile encryption is a feature of a broader endpoint security offering. Well, Check Point already has one of the leading products in that space with the Integrity/ZoneAlarm suite. So the Pointsec solution can be bundled pretty quickly and provide a more compelling (and broader) solution for endpoint security.

On the negative side, Check Point hasn't done a good job integrating Integrity/ZoneAlarm into their bigger set of product offerings. So now, Check Point has two distinct businesses, the network stuff (still dominated by FW-1/VPN-1) and now the client side (Integrity and Pointsec). The buyers are different, since it tends to be the desktop manager that has a bigger say in what solutions get rolled out to the endpoints. But Check Point is talking about a "single framework" for network and data security, which I'm not sure is going to be compelling given the organizational dynamics at work.

Clearly this is a first step. Check Point still needs more pieces to be able to spin a compelling story at the CIO level. The data security angle is an interesting one. But doing security well at both the infrastructure and the data/information level is hard and requires a lot of resources. Ask Symantec about that.

So overall, this is a good move to Check Point, albeit a bit expensive. Given the cash flow machine that is Check Point, if they can drive some better channel efficiencies and bundle Pointsec along with the Integrity endpoint stuff, it could be a bargain in hindsight. But isn't that the case with all deals?