RPT-DEALTALK-Tech turns to security for next wave of dealmaking

(Repeats story filed Feb 3 with no change to headline or text)

* Security software crucial to data center market

* McAfee often cited as attractive purchase for HP

* IBM, EMC also seen as potential buyers

By Anupreeta Das

NEW YORK, Feb 3 (Reuters) - As tech spending stages a comeback, industry giants like Hewlett-Packard Co (HPQ.N) and IBM (IBM.N) are expected to scour the security software market for acquisitions that will boost their share of corporate IT budgets.

Security software is a critical component of the "stack" of applications used by companies to store and manage networks and data, making software makers from McAfee Inc MFE.N to upstart Sourcefire Inc (FIRE.O) attractive targets.

"There is a clear trend toward convergence of technologies in the data center, and security is front and center," said Daniel Ives, an analyst at FBR Capital Markets.

He and other analysts said security spending by companies held up well during the recession even as overall IT budgets shrank -- a mark of resilience that only adds to the lure of security companies. "Security really has the attention of CIOs (chief information officers)," Ives said in an interview.

Faced with slower growth in traditional businesses, major tech companies have stepped aggressively into new markets and on each others' toes, particularly in the data center.

Analysts and bankers said the next round of dealmaking will be driven by the desire of companies such as HP, International Business Machines Corp and EMC Corp (EMC.N) to package software, services and hardware for corporate clients.

With a market value of $6 billion and a business focused purely on security software, McAfee is a prime takeover target, they added.

McAfee's chief executive, Dave DeWalt, has steered the company through double-digit sales growth in recent years, and is viewed as a savvy dealmaker and prize addition to any software leadership team. DeWalt used to work for EMC, which he joined after selling it his previous company, Documentum.

Bankers also named security companies Websense Inc (WBSN.O), PGP Corp, SafeNet, Sophos, Sourcefire (FIRE.O) and SonicWALL Inc SNWL.O as acquisition targets.

"Larger companies like IBM, CA Inc (CA.O) and EMC want to enhance their security offerings," said a banker at a private equity firm that owns a security software company, adding, "We continue to see a lot of interest" from potential buyers.

COULD HP BUY MCAFEE?

Among the large tech companies most keen to buy a security company is HP, two bankers and a person close to the company's strategy said.

Since buying Electronic Data Systems for $13 billion in 2008, HP has focused on adding to its software and networking offerings. Last year, it bought 3Com for $2.7 billion and had $13 billion in cash and securities as of Oct. 31, 2009.

Buying a McAfee or Checkpoint Systems Inc (CKP.N) would allow HP to bundle security software into the computers it sells to consumers, and enhance revenue through software sales to companies.

It's an idea many bankers have pitched to HP CEO Mark Hurd over the years. "Hurd is an aggressive guy and security is one of those areas he is keenly interested in," said the person close to HP.

HP declined to comment on Wednesday.

If it chose to sell, McAfee could also draw interest from other technology companies, including data storage giant EMC, which bought RSA Security for $2 billion in 2006.

McAfee was not immediately available for comment.

Ken Allen, a portfolio manager at T Rowe Price, said he expects more consolidation over the next two to three years, with at least one large security company getting acquired.

Security companies typically have a recurring revenue business model that ensures strong cash flow and makes them attractive to buyers, he said.

"Of the big three -- Symantec, Checkpoint and McAfee -- I'd say the greatest likelihood of a takeout is McAfee," said Allen, whose firm owns McAfee shares.

Symantec Corp (SYMC.O), which has grown through dealmaking including its $13.5 billion purchase of Veritas in 2004, is likely to keep its role as an industry consolidator, especially by buying niche players that focus on a single application.

But with a $14 billion market value, Symantec could also become a deal target for a larger company, bankers said. (Reporting by Anupreeta Das; Editing by Tiffany Wu)