How Francisco Partners Might Engineer a Security IPO

This is all just Friday-afternoon speculation on my part, so bear with me, but I can see the outlines of how Francisco Partners could potentially engineer an IPO (or perhaps an acquisition by a larger public player) by combining two security companies in which it holds ownership stakes.

Francisco is the sole owner of WatchGuard Technologies, whose products include unified threat management (UTM) security appliances, SSL VPN gateways, management software, and services and support. Francisco also owns a minority piece of low-end spam-firewall market leader Barracuda Networks.

While Barracuda has other products, including a web firewall and an IM firewall, it made its mark in addressing the anti-spam and email-hygiene requirements of SMEs.

Interestingly, WatchGuard attacked the same markets, first with its SSL VPN offerings and now with its UTM products.

There isn’t a lot of overlap between WatchGuard and Barracuda, and some of the latter’s technology would integrate attractively into WatchGuard’s UTM architecture. What’s more, it’s clear the UTM value proposition — being able to address multiple security threats in a single firewall platform — does resonate with resource-constrained smaller businesses.

A combination of WatchGuard and Barracuda could be enough to sustainably differentiate and hold ground competitively in the SME space against players such as Microsoft, SonicWall, Symantec, McAfee, and SecureComputing (which now owns email-security appliance vendor CipherTrust).

It might also be a means to an IPO, which Barracuda is unlikely to attain on its own merits. The inbound email-security space is just true crowded and too uncertain, and Barracuda, still as something of a one-trick pony, is extremely vulnerable to competitive incursions by bigger players.

The question is, will Barracuda’s major investor, Sequoia Capital, feel inclined to go along with such a scheme. It might, but, then again, it might not.

One thing is certain: Francisco partners bought WatchGuard with a view to turning a profit, just as Sequoia invested in Barracuda with the intention of realizing a return. Necessity might be the mechanism that brings Francisco and Sequoia together to strike a deal that brings together Barracuda and WatchGuard as comprehensive security vendor for SME customers.

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