Epic Ventures
 

Jul 20, 2004

Blue Coat buys Cerberian to boost Web security line


By Bob Mims
The Salt Lake Tribune

 
In a deal worth an estimated $17.5 million, Blue Coat Systems Inc. confirmed Monday it has signed a definitive agreement to buy Utah's Cerberian Inc.
    "This is an exciting transition for us. . . . All along we have been impressed with their technology," said Blue Coat Chief Executive Brian NeSmith, noting his Sunnyvale, Calif., company has worked with Draper-based Cerberian in the past.
    He said that integrating Cerberian's respected Internet filtering applications with its own line of "ProxySG" brand networking computer Web security boxes should help boost overall product sales.
    The acquisition will be completely stock-based. The deal is expected to close within two months, said Bob Verheecke, chief financial officer.
    Blue Coat said it will continue to operate the former Cerberian offices in Draper, and will retain most of the company's employees.
    Greg Heaps, Cerberian's vice president of marketing, sees the acquisition as a timely evolution for his company. Founded in April 2000, Cerberian has grown from just four full-time staffers to 25.
    During that period, it has built partnerships with tech companies such as SonicWALL, CacheFlow, Computer Associates and Japanese Internet service provider IIJ.
    "We're seeing the whole security space consolidating, particularly in our area," Heaps said. "There have been a number of other, similar acquisitions this year."
    He said the acquisition also is "a natural move" for Blue Coat, allowing it to include additional protective services with its rack-mounted modules.
    Verheecke warned investors that the acquisition will impact Blue Coat's second, third and fourth quarters. He estimated $400,000 will be needed to absorb Cerberian employees into a work force of nearly 300, while another $200,000 will be needed to incorporate the Utah company's various data centers.
    Investors seemed initially leery of the deal. Blue Coat's stock closed at $20.28, down $2.71, or 12 percent on the Nasdaq Stock Market.
      However, analyst Seihun Kong of San Francisco's ThinkEquity Partners, likes the acquisition.
    "People have reacted a little negatively [due to] near-term revenues and earnings dilution," he said. "But at the end of the day, this makes strategic sense for Blue Coat."
    Kong noted that by incorporating Cerberian applications, Blue Coat will be less dependent on third parties to fill out its product package. "They will have a lot more control now over end-user pricing," he said.
    bmims@sltrib.com