WatchGuard AddsSecurity Company

In a bid to reach larger customers, computer security company WatchGuard Technologies Inc. paid $48 million in February to buy RapidStream Inc. RapidStream is a private company that makes firewall and private network appliances that contain dedicated security processors called application specific integrated circuits (ASIC). “The RapidStream acquisition gives WatchGuard technology that will help it penetrate the large-enterprise market. Some of the new technology will also help it compete in the mid-size market, where most of their customers are now,” says Joseph Maxa, an analyst at Minneapolis-based Dougherty & Co. WatchGuard’s primary business is providing Internet security solutions designed to protect companies that use the Internet for electronic commerce and secure communications. While rivals NetScreen Technologies Inc. and SonicWall Inc. have their own ASIC-based security appliances, WatchGuard has had to source these components externally. Maxa adds that WatchGuard has suffered from disappointing results in the last two quarters. The company has had to restructure its sales force and adjust some distribution channels. The RapidStream acquisition may contribute to getting the company back on track because the technology purchased will enable networks at large organizations to function more quickly despite being more protected. “The deal gives WatchGuard a parallel processing approach that will lead to higher throughput rates. And because the installation of security software often slows down network connections, this is a key metric in the industry,” says Jonathan S. Geurkink, a software analyst at Wells Fargo Securities in Seattle. He notes that WatchGuard will likely profit from the branding efforts of RapidStream. He adds that WatchGuard management has said that it will retain a licensing agreement with third-party software provider Check Point Software. RapidStream had revised its product line to support Check Point Next Generation firewall products and has benefited from Check Point’s certification of all of its hardware partners. This has meant that the fast RapidStream box will interoperate with gear made by other Check Point partners, such as Nokia Corp., Sun Microsystems Inc., and Compaq Computer Corp. Maxa, who notes that the merger was designed primarily to acquire technology rather than production facilities or personnel, downplays the possibility of integration problems. In fact, the likelihood that the RapidStream acquisition will aid the progress of a turnaround at WatchGuard could make the company an attractive target for competitors. “Right now the stock is selling for about $5 per share, and at that price it looks pretty cheap. It’s possible that someone could make a play for the company,” Geurkink says.