Cisco Buying Its Way to Security

IronPort Systems, which develops network security software and appliances, was rumored to be an IPO prospect for 2007. Well, Cisco (Nasdaq: CSCO  ) made a better offer -- that is, an $830 million purchase of the company. Essentially, the deal will bolster Cisco's gaps in two critical areas: antispam and antivirus.

Founded in 2000, IronPort has raised about $94 million from venture capitalists and strategic investors, such as General Motors (NYSE: GM  ) .

The core of the technology is SenderBase, a global email traffic-monitoring service that collects data from more than 100,000 Internet service providers, universities, and companies. In fact, IronPort's technology is quite scalable, with customers that range from small companies to Global 2000 players.

As Nick Selby, senior analyst of enterprise security at The 451 Group, told me, "Cisco has bought a robust and complementary product line that can address immediately a clear point of pain for large enterprises. To us, a very interesting aspect of the deal is the future of the reputation technology IronPort has developed, which allows it [to] reduce significantly the volume of spam it needs to run through filters."

However, the valuation of the deal appears to be steep -- at about 8 times revenues. Then again, Cisco has a huge installed base of customers that use its routers and switches. So why not provide software add-ons?

The IronPort deal may not be the end of Cisco's foray into security. The company has a huge market cap ($172 billion), as well as a hefty war chest of cash. In other words, it has the wherewithal to be a big player in the security market -- which is something that companies like EMC (NYSE: EMC  ) , Symantec (Nasdaq: SYMC  ) , Check Point (Nasdaq: CHKP  ) , and McAfee (NYSE: MFE  ) should take notice of.

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Fool contributor Tom Taulli does not own shares mentioned in this article. He is currently ranked 645 out of 19,303 in CAPS. Symantec is an Inside Value pick. McAfee is a former Stock Advisor selection. The Fool has a disclosure policy.


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