Even after being in this business 20 years I still get surprised from time to time. When I saw this morning that Blue Coat is acquiring Solera Networks I was surprised, and not with a childlike sense of wonder. It was a WTF? type surprise.
Blue Coat was taken private by Thoma Bravo, et al, a while back, so they don’t need to divulge the deal size. It seems Blue Coat did the deal to position the Solera technology as a good compliment to their existing perimeter filtering and blocking technology. Along with the Crossbeam acquisition, Solera can now run on big hardware next to Blue Coat in all those government and large enterprise networks where they scrutinize web traffic. Traffic volumes continue to expand, and given the advanced attacks everyone worries about, Solera’s analytics and detection capabilities fill a clear need. Blue Coat, like Websense (which went private this week in a private equity buyout), is being squeezed by cloud-based web filtering services and UTM/NGFW consolidation in their core business. So adding the ability to capture and analyze traffic at the perimeter moves the bar a bit, and makes sense for them.
I expected Solera to get bought this year at some point. It’s hard to compete with a behemoth like RSA/NetWitness for years without deep pockets and an extensive global sales distribution engine. But I expected the buyer to be a big security player (McAfee, IBM, HP, etc.), who would look at what RSA has done integrating NetWitness technology as the foundation of their security management stack; and try something similar with Solera’s capture, forensics, and analytics technology. Given Solera’s existing partnership with McAfee and corporate parent Intel’s equity stake, I figured it would be them. Which is why I stay away from the gambling tables. I’m a crappy prognosticator.
As Adrian is writing in the Security Analytics with Big Data series (Introduction & Use Cases) series, we expect SIEM to evolve over time to analyze events, network packets, and a variety of other data sources. This makes the ability to capture and analyze packets – which happens at a fundamentally different scale than events – absolutely critical for any company wanting to play in security management down the line. Solera was one of a handful of companies (a small handful) with the technology, so seeing them end up with Blue Coat is mildly disappointing, at least from the perspective of someone who wants to see broader solutions that solve larger security management problems.
Blue Coat doesn’t have a way to fully leverage the broader opportunity packet capture brings to security management, because they operate only at the network layer. Since they were taken private they ha’ve hunkered down and focused on content analysis on the perimeter to find advanced attacks. Or something like that. But detecting advanced attacks and protecting corporate data require a much broader view of the security world than just the network. I guess if Blue Coat keeps buying stuff, leveraging Thoma’s deep pockets, they could acquire their way into a capability to deal with advanced attacks across all security domains. They would need something to protect devices. They would need some NAC to ensure they don’t go where they aren’t supposed to. They would need more traditional SIEM/security management. And they would need to integrate all the pieces into a common user experience. I’m sure they will get right on that.
The timing is curious as well – especially if Blue Coat’s longer term strategy is to be a PE-backed aggregator and eventually take the company public, sell at a big increase in valuation (like SonicWALL) or milk large revenue and maintenance streams (like Attachmate). They could have bought a company in a more mature market (as TripWire did with nCircle), where the revenue impact would be greater even at a lower growth rate. And if they wanted sexy, perhaps buy a cloud/SECaaS thing. But to take out a company in a small market, which will require continued evangelizing to get past the tipping point, is curious.
Let’s take a look at the other side of the deal Solera’s motivation – which brings up the fundamental drivers for start-ups to do deals:
- Strategic fit: Optimally start-ups love to find a partner who provides a strategic fit, with little product overlap and the ability to invest significantly in their product and/or service. Of course integration is always challenging but at least this kind of deal provides hope for a better tomorrow. Even if the reality usually falls a bit short.
- Distribution channel leverage: Similarly, start-ups sometimes become the cool emerging technology that gets pumped through a big distribution machine, as the acquirer watches the cash register ring. This is the concept behind big security vendors buying smaller technology firms to increase their wallet share with key customers.
- Too much money: Sometimes a buyer comes forward with the proverbial offer that is too good to refuse. Like when Yahoo or Facebook pay $1.1 billion for a web property that generates minimal revenue. Just saying. We don’t see many of these deals in security.
- Investor pressure: Sometimes investors just want an out. It might be because they have lost faith, their fund is winding down, they need a win (of any size), or merely because they are tired and want to move on.
- Pre-emptive strike: Sometimes start-ups sell when they see the wall. They know competition is coming after them. They know their technical differentiation will dissipate over time and they will be under siege from marketing vapor from well-funded much bigger companies. So they get out when they can – it is usually a good thing because the next two options are what’s left if they mess up.
- No choice: If the start-up waits too long they lose a lot of their leverage as competitors close in. At this point they will take what they can get, make investors whole, and hopefully find a decent place for their employees. They also promise themselves to sell sooner the next time.
- Fire sale: This happens when a start-up with no choice doesn’t get a deal done. They get sold for parts, which usually means jobs for the top engineers and sales folks, and a couple Starbucks cards for investors.
So which bucket do you think Blue Coat/Solera fits in? The truth is, I don’t know. The companies will say it’s clearly a strategic fit with some distribution channel leverage, given Blue Coat’s customer base. I’m not so sure – I did spend the beginning of this post on why I didn’t think it’s that strategic (not to Solera anyway), and is likely to minimize the impact of Solera’s technology on the market. If we look at sales, it’s not like Blue Coat had all that much momentum before the Thoma Bravo deal. Given that Blue Coat did deal rather than a really big player, with really deep pockets, who writes really big checks, I am not sure the offer was too good to pass up. Thoma Bravo has very deep pockets, but pumping a bunch of equity into an early market at a very high multiple isn’t really in the private equity playbook.
Which leads me to speculate that it was a pre-emptive strike. Packet capture is commoditizing. There are a number of companies who can pull packets off the wire and put them on a disk at wire speeds. There are fewer that can analyze that volume of traffic at scale and derive any kind of intelligence from it, but the Big Security players have a path to do that with their Big Data engines. On the high end, RSA/NetWitness continues to do well with network forensics, and they are positioned for this evolution to Big Data Security Analytics (the future of SIEM). I guess I am still surprised Solera didn’t find a better partner for a better shot at RSA/NetWitness. But they didn’t, and that’s too bad.
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