Juniper Buys NetScreen To Add Security Products

The march of technology deals continued in February when Juniper Networks Inc. paid $4 billion in stock to buy network security provider NetScreen Technologies Inc., and more marriages of infrastructure and security specialists may be on the way. “The deal makes sense because it will offer Juniper the opportunity to take security and embed it into the infrastructure it sells to its customers,” says Frank Dzubeck, President of Communication Network Architects, a Washington-based consulting company. NetScreen makes network security products including firewalls and virtual private network technology that increase computer networks’ ability to repel would-be intruders. Both companies are based in Sunnyvale, Calif. While Oracle Corp.’s hostile bid for PeopleSoft Inc. has been the most highly visible tech deal, Juniper/NetScreen was done on a friendly basis. “Friendly” may be an understatement since NetScreen President and CEO Robert Thomas said that executives at his company were “almost delirious” at the opportunity to combine with Juniper. The addition of NetScreen’s technology will help Juniper better serve its customers by addressing network security concerns, in addition to boosting reliability and performance, said Juniper CEO Scott Kriens in a statement announcing the acquisition. Although Juniper paid a 50% premium, it is justified, in Dzubeck’s view, because “NetScreen had $400 million in cash on its books, and it throws off a ton of cash. It will be immediately accretive to Juniper’s bottom line.” He adds that there are a number of security companies, most of them private but including Symantec Corp. and Checkpoint Systems Inc., that are attractive targets because they generate a lot of cash. “These companies are not pure startups. They all have significant revenue tracks.” He expects to see the basic template of the Juniper/NetScreen deal repeated because the addition of security companies to infrastructure providers will be an attractive strategy for computer companies going forward. And while a healthy cash flow is nice, it is especially attractive when it is a characteristic of companies in a hot sector like computer network security. “Security is on the lips of every customer,” says Dzubeck. He adds that few customers are talking about upgrading the “plumbing” of their networks. Rather, from an m&a point of view, there is a lot of interest in taking a software-value-add company and tying it into a manufacturer of the plumbing, or infrastructure, of an enterprise system. For Pete Lindstrom, an analyst at Spire Security in Malvern, Pa., Juniper’s continued ability to compete with the 800-pound gorilla of computer network equipment sales, Cisco Systems Inc., was a primary motivation for the merger. “NetScreen’s products are among the most network-friendly out there, so they were an obvious acquisition for Juniper. It gives them the chance to go toe to toe with Cisco,” he states. Copyright 2004 Thomson Media Inc. All Rights Reserved. http://www.thomsonmedia.com http://www.majournal.com