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7.31.2009
SecureWorks Raises $31M to Expand

Acquisitions may drive revenues to $100M

Atlanta Business Chronicle - by Urvaksh Karkaria, Staff Writer

Atlanta-based SecureWorks Inc. has raised $31.5 million to help finance an acquisition that will boost its customer base and expand its geographic footprint.

The managed security services provider firm has mapped out an acquisition-fueled growth strategy that will position it to better compete with heftier competitors such as IBM Corp.

SecureWorks is also considering a second shot at an initial public offering as early as next year, CEO Mike Cote said.

SecureWorks monitors corporate networks and helps protect against online attacks from crooks looking to steal financial and other information.

The company feeds on paranoia. As corporate America migrates online, protecting sensitive data is more complicated than padlocking the office every night. Corporations are in a cat-and-mouse game with determined criminals looking to crack their databases and swipe passwords, Social Security numbers, even trade secrets.

Feeding the paranoia is paying off. SecureWorks’ sales nearly tripled between 2005 and 2007 to $42 million. The company expects to add 300 job over the next three years, boosting its workforce by about 60 percent.

The bulk of the Series C round — about $20 million — came from Boston-based Great Hill Partners, which closed a $1.1 billion fund in February. The private equity firm has set aside up to $120 million to potentially invest in SecureWorks, Cote said.

“For [Great Hill] to allocate money in an investment to SecureWorks,” he said, “shows their comfort and the strength and growth of the company.”

The new financing helped pay for SecureWorks’ roughly $45 million acquisition of the assets of VeriSign Inc.’s managed security services business.

Great Hill, whose executives were not available for comment, brings more than greenbacks to the table.

The private equity firm has experience growing companies internationally — a focus area for SecureWorks.

“We have almost 10 percent in revenues coming from outside the United States,” Cote said.

Great Hill’s contacts inside the federal government are also attractive to SecureWorks.

Deal Time

SecureWorks is in an acquisition-heavy industry. The pure plays need size to survive among the integrated giants, such as IBM. Acquisitions are the growth steroids companies crave — they quickly deliver new customers, talent and top-line growth.

“Our goal is to be the leading global player in information security services,” Cote said.

The VeriSign acquisition allows SecureWorks to bulk up fast and do it for less than it if it tried to grow organically, Gartner Group analyst John Pescatore said.

“SecureWorks is one of the few remaining pure plays in the managed services market,” Pescatore said. “They definitely need to keep [growing], so that they can be price-competitive.”

VeriSign also delivered large and high-profile enterprise clients to SecureWorks.

“Four of the Fortune 10 are clients of ours,” Cote said. “Ten percent of the Global 100 are clients of us.”

VeriSign gives SecureWorks an international footprint, too — helping it compete with global competitors.

“A lot of the competition is with really big companies that have a footprint across the U.S. and globally,” Pescatore said. “[They] have pretty deep pockets.”

SecureWorks now has a foothold in Europe, the Middle East and parts of Asia Pacific. While North America accounts for about 90 percent of SecureWork’s revenue today, Cote expects that to drop to about 75 percent over the next three years.

The market outside North America is less saturated and lacks a dominant player, Cote said.

For SecureWorks, the path to industry domination will be paved with acquisitions. The company, which is plotting to orchestrate a couple of takeovers each year, seeks deals that deliver new technology and products.

SecureWorks hopes to acquire competitors in North America that have more than $25 million in annual revenue, Cote said. It is also eying targets that have revenue of at least $10 million and are in high-growth Asia and Europe.

VeriSign had shopped its managed security services unit since December 2007 — a possible sign it can’t command a sufficiently high price. SecureWorks had bid on the business twice before, clinching it on the third try. “We were able to purchase it at a very good price,” Cote said.

While mostly positive for SecureWorks, the VeriSign acquisition could create some headaches.

The VeriSign unit was on the market for so long that the company had been giving customers deep discounts to keep them from deserting, Pescatore said.

Also, early on, when VeriSign won some of those large customers, it had been very aggressive with its pricing.

So SecureWorks might find itself with some long-term contracts that could be financially unsustainable, Pescatore said.

The Future

Some have suggested SecureWorks might be more takeover bait than acquirer. Cote waved off that possibility.

“I am not focused on trying to sell the company,” the CEO said. “I am focused on trying to build a great [security services] company.

SecureWorks also came pretty close to doing an initial public offering in 2008 — pulling back almost at the finish line.

SecureWorks has the ingredients for a successful IPO: market opportunity, industry buzz and the need to scale up rapidly. The company signs long-term contracts with customers, providing it a relatively stable flow of quarterly revenue.

That financial visibility, coupled with market need, could have public investors jostling to get in on the action.

A volatile stock market and plunging valuations, however, threw cold water on SecureWorks’ plans — but didn’t quite drown it.

While SecureWorks is now focused on integrating the VeriSign acquisition, Cote noted he may look at going public as early as next year.

SecureWorks

About: The Atlanta-based company monitors corporate networks and helps protect against online attacks from criminals looking to steal financial and other information.

Background: Secureworks recently acquired the assets of VeriSign Inc.’s managed security services business.

Employees: About 500

Reach Karkaria at ukarkaria@bizjournals.com.