Proofpoint Buys Fortiva
NOTE: PRELIMINARY BULLETIN
READER INPUT REQUESTED--SEE BOTTOM OF BULLETIN
25 AUGUST 2008
On June 24, 2008, Proofpoint announced it bought Fortiva.
Buyer Proofpoint Background
- Business values to customers are:
- Users waste much less time having to process spam email, or being distracted by email-borne viruses.
- Helps the organization comply with laws and regulations limiting the types of communication it has with outsiders.
- Helps the organization prevent other types of information loss that could be damaging, such as the transfer of intellectual property, or of customer lists.
- Technology mainly provides:
- Email-based spam, phishing, and virus control, and policy-based encryption.
- Filtering of outbound information to prevent data leaks. This covers many types of content, including email and attachments, webmail, files, FTP, instant messaging, and blog postings.
- Embodied as customer-premises software, customer-premises appliance, SaaS.
- Majority of products have the same code base across customer-premises software, customer-premises appliance, customer-premises virtual device, SaaS.
- Founded in 2002.
- Web site is at www.proofpoint.com.
Seller Fortiva Background
- Business values to customers are:
- Lets users of MS Exchange have larger and faster-performing mailboxes.
- Allows users to keep copies of past emails and provides easy access to them.
- Organizations can respond more effectively to litigation, by making it easier to access past emails.
- Saves past email as required by laws and regulations.
- Main service offering is Fortiva Archiving Suite. Email archiving, lots of e-discovery services, storage management. Typical cost is $1-$2/mailbox/month.
- Company also offers SmartStore. This is a subset of the Archiving Suite, with more limited e-discovery capabilities. Cost is typically about $1/month.
- Services mainly aimed at companies with 1,000 mailboxes or more.
- Main competitors are customer-premises-installed products: Symantec/Vault, EMC/Legato, CA.
- Main competitive strengths:
- Nice encryption architecture, addressing customers privacy concerns.
- High-performance search, using a modern distributed search architecture.
- Tight integration with the customers internal systems. In particular, theres tight integration with Active Directory, so users sign on with normal ID and password, and policy definition can use AD groups and distribution lists.
- Around a third of revenues come from OEM arrangement with MSN; around a third come from OEM arrangement with MessageLabs; the rest is direct sales.
- See also the technical review of Fortiva by Ferris Research.
- Founded in 2004.
- Website is at www.fortiva.com.
Benefits for Buyer Proofpoint
- An attractive, and natural, enhancement of Proofpoint's offering.
- Proofpoint's data leak prevention technology addresses compliance concerns. Compliance has much to do with archiving, so Fortiva helps Proofpoint build a stronger compliance story.
- Proofpoint's content scanning is also valuable for e-discovery; here again, Fortiva's archiving and e-discovery capabilities help Proofpoint build a strong compliance story.
- Proofpoint's technology has been located at the Internet boundary. Fortiva helps it integrate more closely with internal systems. In particular, it helps Proofpoint apply policy within an organization, not just at the boundary.
Benefits for Seller Fortiva
- Solves cash problem.
- Gets sales leverage. It gets access to large corporations via Proofpoint's direct sales and support organization and its channel. It also gets access to Proofpoint's international market.
Seller Fortiva: Valuation Considerations
- Revenues: not disclosed. Ferris Research estimates current revenues at $5M/year.
- Not profitable.
- 40 employees.
- About 250 paying customers.
- $17M raised to date by Fortiva:
- McLean Watson Capital invested $1M in late 2004.
- Ventures West and McLean Watson Capital invested a further $4M in April 2005.
- A Series A round closed in September 2005, bringing total equity raised to $8M, with funding from Cargill Ventures, Ventures West, and McLean Watson Capital.
- Financing since this time appears to have been bridging loans.
- Fortiva was unable to raise further money, either by equity or loans. Thus it was forced to find a buyer.
Terms of Deal
- Not disclosed.
- Ferris Research preliminary estimates are: $20M deal; price/revenue ratio of 4:1.
|Buyer/Seller ||Date ||Price |
|Dell/MessageOne ||2/08 ||$155M |
|Autonomy/Zantaz ||7/07 ||$375M |
|Google/Postini ||7/07 ||$625M |
|Veritas-Symantec/KVS ||9/04 ||$225M |
Possible Negatives/Concerns About the Merger
- An important Proofpoint strength is the integrated, single point of administration of the spam/virus/malware/DLP technology. However, Fortivas archiving and e-discovery code base is entirely separate, and will need to be integrated. Thats tough to do, and is likely to detract from the single-point-of-administration strength.
- Proofpoint is building a content control story. This is intrinsically one that must cover many types of electronic information, from different protocols (e.g., IM, HTTP, FTP, print streams, file server I/O) to different types of data at rest (e.g., MS Office documents, PDFs). The company has started in this direction, with its data loss prevention capabilities. But still, much of its skills turn around email, and filtering at the boundary. Building a full multiple-content-types story that works within an organization is a major technical challenge.
- Fortivas archiving is an attractive enhancement to the SaaS offering. These capabilities arent, however, provided by Proofpoints customer-premises offerings.
Other Ferris Research Comments
- Total funding received to date by Proofpoint: $86M. In February 2008, Proofpoint raised $28M for acquisitions (led by DAG Ventures); it got a roughly $300M valuation.
- 50% of Fortiva revenues go through partners. Microsoft Online Services is the largest OEM.
- Googles acquisition of Postini helps validate the acquisition of Fortiva by Proofpoint. Postinis archiving is an attractive part of its spam/virus SaaS offering.
- Appears to be a sound investment for Proofpoint. The cost should quickly be justified by the incremental revenues alone; the other benefits come for free.
- Proofpoint has no immediate plans to integrate the different code bases. That seems strange.
- Fortiva has good technology. With hindsight, perhaps it should have invested more in marketing. Some people, albeit not your present interlocutor, suggest that its timing was too early.
Got Additional Relevant Information?
- We're interested in all input, especially on the price paid, Fortivas revenue history, the extent of Fortivas bank debt, and the return for common and preferred stockholders. And, of course, any errors.
- Contact David Ferris on +1 415 367 3436, or firstname.lastname@example.org. Unless you indicate otherwise, well assume all communications are confidential.
... David Ferris