During the last week, shares in Internet Security Systems (ISS) have gained on rumors of its imminent acquisition and been beaten back down, at least partially, by an analyst downgrade.
The acquisition rumors are persisting, and it seems there’s some legitimacy to them.
IBM still remains the likeliest acquirer, since ISS already is one of its partners and IBM would like to become a stronger player in Internet security. ISS’s managed-security offerings and its intrusion-prevention products would offer IBM entree into two security markets with robust growth prospects. The managed-security offerings would also fit exceptionally well into IBM Global Services’ solutions portfolio, translating into instant revenue gains.
The companies supposedly are talking to another, but that doesn’t mean a deal will be consummated.
Other companies cited as potential acquirers of ISS in an article appearing today at TheStreet.com include Microsoft, CA (oops, I almost referred to it as Computer Associates, the company’s name during its bad old days), Nortel, and Extreme Networks.
Let’s eliminate Extreme Networks as a candidate immediately. Extreme is more likely to be acquired than to acquire, and its market capitalization of $468 million is dwarfed by ISS’s market cap of about $966 million. Extreme would have to go into massive debt to make the acquisition work, and I doubt that its board or its shareholders have the stomachs for that sort of roller-coaster ride.
Next up is CA, which has lost its appetite for bigger acquisitions and is restricting itself to buying small private companies, sometimes at relatively early stages of development. Just last week, CA acquired XOsoft, which provides application-availability solutions and will be incorporated within CA’s storage-management portfolio.
I don’t think CA is inclined to enter the IPS market, and some of the other areas in which ISS is active would overlap with products CA already has developed internally or has obtained through previous acquisitions. The probability of CA acquiring ISS is low.
As for Nortel, the company has its hands full getting out of markets where it made ill-advised acquisitions in the past. It wouldn’t be able to leverage the managed-services element of an acquisition of ISS, and it might not want to enter the IPS market, where it would have to compete with a range of vendors including Cisco, Juniper, McAfee, 3Com, Symantec, and others, some of whom Nortel might need as partners in other areas of its business. There also are parts of ISS’s product portfolio that wouldn’t mesh well with Nortel’s admittedly capricious strategic direction. Nortel is a low-probability acquirer of ISS, but probably not as much of a rank longshot as CA.
That leaves IBM and Microsoft.
I don’t think Microsoft will be acquire ISS, but it could happen. When you examine Microsoft’s security strategy, you will find that its focus has been on, and continues to be about, securing and defending Microsoft’s own applications and operating systems, not about providing a generic umbrella of protection throughout the enterprise. Now, if you look at what an network IPS does and where it typically sits in a network, you’ll note that it is an inline device that inspects application-content flows — across the full spectrum of application protocols — to prevent attacks in real time.
In my view, Microsoft would not be fervently interested in a network-based IPS, but it might be inclined to look at host-based intrusion prevention systems, which could and would sit alongside its various server products, such as its email, web, database, and business-application servers.
While it is true that ISS offers both host- and network-based IPS products, as well as a desktop-based IPS offering, there are parts of ISS — including its network-based IPS, its email-security products, its desktop and server firewalls, and much of its security-management and web-content filtering offerings — that Microsoft might not want due to lack of interest or overlap with existing products.
Microsoft remains a possibility, though, because of its potential interest in what ISS’s host- and desktop-based IPS products could offer.
Still, the likeliest acquirer, if one steps forward, is IBM, for the reasons enumerated above.