Having just realized that over half its customers buy its products purely upon the recommendations of software security consultants, CyberGuard Corp has immediately purchased a 30 strong security consulting outfit for $7.8m, called Arca Systems Inc. CyberGuard, based in Fort Lauderdale, Florida, sells network security products including corporate firewalls, and although it continues to be loss making, revenues for the nine months to March climbed 47% to $15m. Having polled its customers on their buying habits, and having combined this with predictions showing the market for security consulting doubling to $450m in the next two years, CyberGuard felt compelled to pay the equivalent of $7.8m in stock for privately held, San Jose, California-based Arca Systems, diluting its existing shares by 6.5%. Arca had revenues of $3.6m in its last nine months, and CyberGuard revealed that combining the two companies for the same period on a pooling of interests basis will cut its reported losses by six cents a share to $0.69, putting Arca’s profits for the period at around $0.5m. CyberGuard’s CEO Bob Carberry said the acquisition was entirely market driven, aided by the fact that it will lift CyberGuard towards profitability. Going forward, he expects a third or more of group revenues to derive from consultancy and services. The main reason for purchasing and not hiring the staff, he said, was to gain access to Arca’s high percentage of US government customers, many of whom fund Arca’s R&D activity, and who ultimately influence government policy on electronic security issues. Arca will operate as a subsidiary company, maintaining its own brand name in order to retain existing customers.
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