October 9, 2007 / 2:04 AM / in 10 years

McAfee to buy SafeBoot for $350 mln, get encryption

BOSTON (Reuters) - Software maker McAfee Inc MFE.N said on Monday it will buy privately held SafeBoot B.V. for $350 million in cash, adding data encryption technology to its line of anti-virus programs and other computer security products.

The move gives McAfee technology to address a problem that has made big news in recent months: data breaches that occur when computers with sensitive information are stolen.

Clothing retailer Gap Inc (GPS.N) last month joined a long list of companies and government agencies that have had to face the issue when it disclosed that a laptop computer containing social security numbers of about 800,000 job applicants had been stolen.

SafeBoot is McAfee’s first acquisition since it brought in outsider Dave DeWalt as chief executive in April. McAfee is working to revamp its product line and complete a financial audit that has kept it from filing results for 2006.

The company said that more acquisitions might be in store as DeWalt looks to build out McAfee’s product line.

“We continue to look at tuck-in acquisitions in the small to medium category as one of the levers for building our product suite as part of our broader approach to security risk management,” said McAfee spokesman Joris Evers.

As of the end of June, the software maker had a cash war chest of about $1.4 billion on its books that it could use toward acquisitions.

SafeBoot of Nieuwegein in the Netherlands sells software that allow users to encrypt files, folders, entire hard drives or information stored on devices such as mobile phones. Once it is encrypted, data is useless unless it is unlocked with a password.

The market for encryption software products is about $1 billion per year, according to McAfee, which said it hopes to close the deal in the fourth quarter.

Interest in data encryption software has grown as the recent rash of data breaches has put businesses in the position of having to confront the reality of complying with disclosure laws in many European countries and at least 39 U.S. states.

They require notifying individuals whose data has been lost, a process that can damage the reputation of a company and send customers fleeing. Disclosure requirements are often waived if the data is encrypted.

McAfee said it plans to add SafeBoot technology to products targeted at consumers, small businesses and large corporations.

When McAfee enters the encryption market, it will compete with PGP Corp, a privately held company that McAfee’s corporate predecessor, Network Associates, bought in 1997 and sold in 2002.

    “Customer demand for encryption is much higher today than it was when McAfee sold PGP, so now is the right time to acquire SafeBoot and make encryption a key part of our data security offering,” Evers said.

    SafeBoot has some 4,200 customers, including more than 150 companies listed in the Fortune 500, according to McAfee.

    According to PGP’s Web site, it has 80,000 customers, including 95 of the companies in the Fortune 100.

    McAfee’s purchase of SafeBoot could prompt rivals including Symantec Corp (SYMC.O), the world’s biggest maker of computer security software, and EMC Corp’s EMC.N RSA security division, to look at buying the handful of remaining encryption software companies, said Jefferies & Co. analyst Katherine Egbert.

    Besides PGP, Germany’s Utimaco Safeware AG UTIG.DE sells such products. Officials at the company’s U.S. offices in Foxboro, Massachusetts, couldn’t be reached for comment.

    PGP Chief Executive Phillip Dunkelberger said in an interview that he is not interested in selling his company.

    He said his plan is for PGP to keep developing encryption products that are compatible with data and security software and hardware from other companies.

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