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Websense Going Private

By Rich

Websense announced today that they are being acquired by Vista Equity Partners and will be going private when the transaction closes. From the press release:

Under the terms of the agreement, Websense stockholders will receive $24.75 in cash for each share of Websense common stock they hold, representing a premium of approximately 29 percent over Websense’s closing price on May 17, 2013 and a 53 percent premium to Websense’s average closing price over the past 60 days. The Websense board of directors unanimously recommends that the company’s stockholders tender their shares in the tender offer.

You need to know someone (like a PE fund) to get in...Let’s be honest – Websense needed to do something, and John McCormack was elevated to the CEO position to get some sort of deal done. They have been languishing for the last few years under serious execution failures, predominantly in sales, and their channel strategy. The competition basically wrote them off, and has spent the last few years looting the Websense installed base.

But unlike most companies which end up needing rescue from a private equity firm, Websense still has a decent product and technology. I have heard from multiple competitors over the past couple years that they have been surprised Websense hasn’t been more of a challenge given the capability of their rebuilt product line. TRITON is a good platform, combining email and web security with DLP – available on-premise, in the cloud, or as a hybrid deployment.

That cloud piece holds the potential to save this from being a total train wreck for Vista. The on-premise web filtering market is being subsumed by multiple perimeter security vendors. Email security has substantially moved to the cloud, and is a mature market with highly competitive products from larger competitors. DLP isn’t enough to support a standalone company. Even combining these three pieces isn’t enough when the UTM guys advertise it all on one box for the mid-market, particularly because large enterprises look for best-of-breed components rather than for bundles.

We assume Vista wants to break out the standard private equity playbook, focusing on sales execution and rebuilding distribution channels to generate cash by leveraging the installed base. Then they can sell Websense off in 2-3 years to a strategic acquirer. Thoma Bravo has proven a few times that if you can execute on the PE playbook in the security market, it’s great for the investors and remaining management, who walk away with a big economic win. TRITON has the potential to drive a positive exit, but only because of the cloud piece. On-premise they won’t be able to compete with the broader UTM and NGFW boxes. But Security as a Service bundles for email, web, and DLP are a growing market – especially in the mid-market, and even some enterprises are moving that way. Think ZScaler, not Check Point. Unlike the box pushers Websense is already a legitimate SecaaS player.

We are not fortune tellers but if Vista expects a return similar to the SonicWALL deal, that is a stretch. Acquiring Websense is certainly one place to start in the security market, and there is a reasonable chance they won’t lose money – especially when they recapitalize the debt in a few quarters and take a distribution to cover their equity investment. The PE guys aren’t dumb. But in order to create a big win they need to inject some serious vision, rebuild the product teams, and streamline around TRITON with an emphasis on the cloud and hybrid options, all while stopping the bleed-off of the installed base. We hope internally they have a sense of urgency and excitement, as they step away from the scrutiny of the public market – not one of relief that they can hide for a few more years.

As far as existing customers, it’s hard to see a downside unless Vista decides to focus on sales and channels while totally neglecting product and technology. They would be idiots to take that approach, though, so odds are good for the product continuing to improve and remaining competitive.

Websense isn’t dead in the water by any means – if anything this deal gives them a chance to make the required changes without worrying about quarterly sales goals. But there will be nothing easy about turning Websense around. Vista and Websense have a lot of work in front of them.

Photo credit: “Private” originally uploaded by Richard Holt

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