The $47-a-share deal represents a 13% premium on TippingPoint’s recent closing price. The sale price includes the price of assumed options and costs, and reportedly represents about a third of 3Com’s available cash.
3Com CEO Bruce Clafin told analysts that TippingPoint will operate as a separate division of the company, with CEO Kip McClanahan staying on as president of the new unit. No jobs will be lost, he said.
We believed security was essential to deliver convergence, Clafin said, referring the 3Com’s plan to deliver products and a strategy to handle IP-based converged voice, video and data networks.
TippingPoint makes network intrusion prevention systems, and has taken a network-centric approach to its products, meaning the fit is good with 3Com, compared to alternate IPS products offered as appliances or software, said Clafin.
The advantages of the deal to 3Com are that it broadens its focus from the layer 2-3 gear market, which has not been kind to 3Com over the last few years, and goes up the stack into full packet inspection technology.
TippingPoint is still small, predicting revenue between $11.8 million and $12.4 million for the current quarter, and unprofitable, expecting to lose up to $0.19 per share, but is growing rapidly. IPS products are the hot topic in the perimeter security market.
The smaller firm operates almost entirely in North American, whereas 3Com operates primarily elsewhere. McClanahan said TippingPoint will be able to scale much faster under new ownership. What we needed was reach, he said.
Like the acquisition this year of NetScreen by Juniper Networks and the recent announcement of a tight partnership between Symantec and Nortel, the acquisition shows that vendors see security becoming an integral part of the network infrastructure.
The world is no longer nicely divided into security and networking, and the channel partners who understand that vision are the ones we’ll go after, Clafin said, responding to a question about the historically separate sets of sales expertise.
TippingPoint considers itself high-end, and has been going after carriers and large enterprises in its first few years as an IPS player. IPS is a nascent market, designed to deal with the limitations of firewalls, antivirus and intrusion detection.
But 3Com thinks the acquisition will eventually help boost its sales to small and medium sized enterprises, when the IPS market gets past the early adopter stage and starts being a function of most network hardware.
Carrier-class scales down, security appliances do not scale up, McClanahan said. You start high and work your way down through any network deployment, you can’t start low and make your way up.
TippingPoint competes mainly against McAfee, Juniper and Internet Security Systems, in that order, McClanahan said. Cisco barely shows up in head-to-head sales encounters, he said, but is expected to become the key competitor over time.
3Com has been shrinking for the past three years, and its last two quarters have been particularly disappointing, with a recent profit warning alerting investors that third-quarter revenue will be significantly below target.
