Two deals, that of Hewlett-Packard’s purchase of Mercury Interactive for $4.5 billion (see story on p42 for full details) and chip maker AMD’s $5.4 billion acquisition of graphics chips maker ATI, were by far the largest deals in a busy month.

But there was also a flurry of activity elsewhere in the IT sector, notably in the enterprise security market. That market is undergoing a period of hectic consolidation, as best-of-breed security vendors pair up to provide broader security offerings. With heavyweight competitors such as Cisco and Internet Security Systems (ISS) dominating the market, niche players have found they need to broaden their product set.

Network security vendor SECURE COMPUTING, for example, purchased messaging security company CIPHERTRUST for $273.6 million, thereby adding the Iron Mail email security appliance to its product suite. According to analysts at IDC, CipherTrust leads the messaging security appliance market, a market growing at a compound annual rate of 47%.

The acquisition will augment its aim to become a player in the Unified Threat Management (UTM) market, where firewall, antivirus, intrusion detection and patch management technologies are bundled together in a single package. In 2005, Secure Computing bought rival CyberGuard, in its first major step towards expanding its offerings.

Elsewhere, another UTM vendor took the unusual decision of selling out to the lowest bidder. WATCHGUARD TECHNOLOGIES, an ailing UTM appliance manufacturer which posted a net loss of $8.2 million in 2005, turned down two offers from private equity fund Vector Capital. Instead it settled for a lower bid from the Silicon Valley technology fund, FRANCISCO PARTNERS, which offered $151 million, claiming Vector’s bid involved too many ‘contingencies’.

Meanwhile, multi-factor authentication solutions provider ENTRUST picked up fraud detection software company BUSINESS SIGNATURES for $50 million. This pairing mirrors the acquisition by Entrust’s principle competitor RSA Security of Cyota, another fraud detection vendor, in 2005.

The combination of authentication and fraud detection expands Entrust’s capabilities to provide secure transactions. Businesses employing its services may now tighten security on transactions ranging from the large and infrequent to the small and numerous.

But this type of acquisition could not save RSA, which was recently acquired by storage giant EMC in a deal worth $2.1 billion. Further consolidation in the IT security market should not be ruled out.

See our table for June/July's most important IT industry mergers: Download PDF

Further reading

• HP revives its software interests - August 2006