:: Deepquest ::

Security software market analysts have been calling for significant consolidation in the space since at least 2005, but some industry watchers are predicting that 2007 may be the year when the trend is finally realized.

While a handful of high-profile deals were pulled off in the security sector during 2006, including EMC’s buyout of RSA Security, of Bedford, Mass., for $2.1 billion and IBM’s acquisition of ISS (Internet Security Systems) for $1.3 billion, experts contend that more deals will get done over the next 12 months as an array of factors combine to increase pressure on applications makers.

Along with the arrival of a range of security technologies from Redmond, Wash.-based Microsoft, both in stand-alone form and as features included in its newly released Vista operating system, the push by larger security software providers to diversify their product lines and generate opportunities in emerging sectors of the market will spur more deals in 2007 than have been seen in previous years, analysts said.

“We’re seeing that large companies are trying to expand their portfolios and become end-to-end providers of enterprise-class security technologies,” said Jon Oltsik, analyst at Enterprise Strategy Group.

“In order to do that, they must cherry pick among the other providers and look for specialists from the venture-backed startup world,” he said. “In addition to traditional security players, we’ll also see more deals made by large IT companies, such as in the case of EMC-RSA, as these companies try to win larger enterprise deals that demand some level of security expertise.”

As another example of the type of deal he expects to materialize in the coming year, Oltsik pointed to the mid-November buyout of encryption specialists Pointsec Mobile Technologies, of Lisle, Ill., by Check Point Software Technologies, of Redwood Shores, Calif., for $586 million.

Midsize companies such as Check Point, which specializes in network security applications, are also being pushed by customers to bring on additional capabilities and will seek out acquisitions targets that lend broader appeal to their products, the analyst said.

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