The company said it was on the auction block last December 6, and reaffirmed it was still in acquisition talks earlier this month. A December report fingered Symantec as a possible bidder.

It’s not clear whether Websense was the only bidder, though the high premium of 63% on SurfControl’s December 5 share price suggests that it was not alone at the bargaining table.

The deal gets Websense into email security, into hosted services, deeper into Europe and deeper into the small business market.

The offer is 700 pence per share, or 201m pounds in total. That’s 40% above yesterday’s SurfControl closing price, and 41% above the 12-month average leading up to the December disclosure. The price is three and a half times SurfControl’s 2006 revenue.

It’s very possibly be a defensive move – keeping SurfControl out of the hands of larger competition – as much as an offensive one.

We believe will be more able to effectively compete with large global security software companies like Symantec, McAfee and Trend Micro, Websense chief executive Gene Hodges said during a conference call with analysts.

Both companies play primarily in the filtering or censorware space. Websense is especially pleased to get its hands on BlackSpider, which provides email security and web filtering as on-demand hosted services, a market Websense has yet to enter.

Had it acquired BlackSpider alone last June, before SurfControl snapped it up, Websense would have paid less than a tenth of the price it has just offered for SurfControl.

The acquisition will also be something of an international expansion for Websense, which will acquire all SurfControl’s European customers.

SurfControl had lots of small and medium business customers, while Websense focuses mainly on the enterprise. Combined, the company would have 41 million installed seats, 49,000 customers and annual revenue of $293m.

There will be layoffs. Websense hopes to cut $60m from its annual expenses by reducing headcount and closing facilities. It will also wind up saddled with $200m of debt, from a bank loan it will use to fund the deal.

The offer has already been approved by SurfControl’s board of directors. Shareholders, whose SurfControl stock hasn’t seen 700 pence since early 2004, seem likely to approve.

The question now is whether market regulators in the US and UK will approve, and how long it will take. The companies expect the deal to close four months after approvals are given.

Websense expects the combination will increase its earnings per share in all but the first quarter after the deal closes.

Our View

Hodges may be right to believe that Websense needs scale to compete. With recent acquisitions and mergers from companies such as Symantec, IBM and EMC, security is increasingly becoming a more mainstream technology offered by the very biggest IT shops.

Some industry players, such as EMC’s president of security Art Coviello, even reckon security’s days as a standalone market are numbered. Some day soon, enterprises will not generally go to a pure-play provider for their security needs, he recently suggested.

If that’s true, then Websense definitely needs scale if it hopes to compete with the big boys, and the large premium it wants to shell out for SurfControl may even be worth it.

That said, if the company’s primary goal with this deal is to get its hands on BlackSpider’s hosted services, it could have saved itself a lot of cash and kept itself out of debt by acquiring the company for less than $40m less than a year ago. Hindsight is a wonderful thing.