There is little confusion about McAfee (NYSE: MFE). Simply put, the company has a single-minded focus on security software. A big part of fulfilling this mission is through acquisitions, with McAfee's latest purchase being Citadel Security Software (OTC BB: CDSS). All in all, it looks like a smart deal.
Since 1996, Citadel has developed software to help companies protect their networks. Its flagship product, Hercules, deals with vulnerabilities across systems based on Microsoft (Nasdaq: MSFT) Windows, Linux, Apple's (Nasdaq: AAPL) Mac, and Unix. This has become critically important, especially in light of the myriad of federal laws such as Sarbanes-Oxley, HIPAA, and the Gramm-Leach-Bliley Act.
Yet Citadel is a small business. For the first six months of 2006, revenues increased from $4.4 million to $8.3 million. But there was a net loss of $3.2 million.
McAfee will spend $56 million in cash plus $4 million in working capital reimbursement to buy out Citadel. For a company the size of McAfee, this is a small-price deal.
But McAfee will certainly acquire valuable technologies. I interviewed Nick Selby, who is a senior analyst and head of the security practice at The 451 Group. "Now we're watching a trend merging management functions, and this deal speaks to that," he told me. "Citadel's patch and remediation management will integrate well with other McAfee products, specifically including its vulnerability assessment line -- acquired from Foundstone -- and compliance audit and reporting capabilities, which [were] acquired in the June purchase of Preventsys."
In other words, McAfee is continuing to evolve its product offering, which is necessary in the dangerous world of security. And with the many recent security breaches in corporate America, products that deal with network security should be in high demand for the long term.
Unfortunately, the stock price of McAfee still has a lot of baggage. That is, Microsoft is getting much more aggressive with its own security offerings. In fact, recently McAfee and Symantec (Nasdaq: SYMC) placed a full-page advertisement in TheFinancial Times warning that Microsoft was limiting customer choices by locking down the core of the new Vista operating system, making it tough for competitors to offer competing security products.
The ad, in fact, could just as well be viewed as a warning for McAfee shareholders.
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Fool contributor Tom Taulli does not own shares mentioned in this article. The Fool has a disclosure policy.
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