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August 23, 1996


By CBR Staff Writer

With analysts predicting an explosion in the information security market but also much rationalization, UK security specialist Zergo Holdings Plc is weighing up the merger and acquisition possibilities. The company, which floated on London’s Alternative Investment Market last September, was founded in 1989 by its chairman, former Racal Electronics Plc security guru Professor Henry Beker (CI No 1,221). It already has a strong position in the UK and Western Europe, with high profile customers in cluding the Bank of England, the Ministry of Defense and Lloyd’s of London. Its first year of trading on AIM has seen revenue rise by 20% to 8.5m British pounds, although continued investment in product development and infrastructure, including enhanced sales and marketing operations, and a 247,000 pound write-down on the company’s freehold property in Hertfordshire sent losses up to 215,000 pounds, from profits of 13,000 British pounds last year. However, Beker is very excited about the future of the information security market, and believes Zergo is established enough really to benefit from what lies ahead. There are many factors driving the information security market, Beker says. Companies’ increased reliance on both internal and external networks, in particular the intranet and the Internet, the development of electronic commerce and new legislation for licensing of trusted third parties, and the realization that a company’s data is an asset to be protected, all demand ever more security. In order to address the worldwide demand for such systems, and to be able to compete in the global market, Zergo is actively talking to several interested parties, either about acquiring companies for strategic growth, about merging in to a larger company, or about strategic alliances with partners. Beker says it would be premature to predict which way Zergo will chose to go, but expects to make several announcements in the coming months. The company has three major areas of activity. Application security systems accounts for 40% of its revenue, network security and associated support and service, 40%, and security consultancy and training makes up the remaining 20%. In application security, the main product family is Zergo Secure Architecture, which provides security for mainframe and client-server applications. The security architecture remains separate from the application, so changes to the application do not impact security. The company is now working on a desktop version. High-profile projects Zergo delivered this year include security for Real Time Gross Settlement for the Bank of England, security for Crest, the UK securities trading system, and the roll-out of the secure network Sitrad for all major Italian banks. The Network Security division manufactures a range of encryption products, both hardware and software, primarily for the UK and Benelux markets. It has its own manufacturing facility, which it says gives it competitive advantage, particularly for sales to the UK government. Zergo already works with a number of partners in this area, where it is involved in major systems integration projects. The consultancy division is growing, and Zergo is concentrating on sales and marketing the services to raise its profile. Reflecting the growing importance of security and demand for expertise within the information technology world, Zergo also offers diploma courses in information security in conjunction with the University of London. Major customers now are in the financial or government sector but Beker believes that by 2001, every desktop computer will have an integrated security system, and he is therefore looking for partners in the commercial sector. Zergo will no doubt one day license its security systems to major vendors, who will automatically incorporate security into every system. The company says its new financial year has started well, with profit in the first quarter and its highest ever order book. It anticipates further profits in the year and that operations will remain cash generating. In line with stated policy, the company pays no dividends.

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