One of the world's first embedded Linux companies has just announced that it is being acquired (again). Embedded Linux security device vendor and security-oriented Linux developer SnapGear has agreed to be acquired by CyberGuard Corp. for approximately $16 million. CyberGuard says SnapGear's line of edge-oriented security devices complements its high-end application-level firewalls and VPNs for the… enterprise core, and that SnapGear's complementary distribution channel will enable it to compete with the largest security appliance providers. SnapGear says it plans to continue its involvement with uClinux, its contributions to open source, and its device design and original equipment manufacturing (OEM) activities.

SnapGear

Australia-based Snapgear began in 1995 as device maker Moreton Bay, before its acquisition by Lineo. Despite its strength in developing uClinux-based security solutions, the former Moreton Bay group's focus was primarily hardware-oriented, so Lineo spun it back out under the “SnapGear” name during Lineo's strategic shift toward software and tools (prior to Lineo's subsequent acquisition by Metrowerks).

SnapGear markets its SnapGear-brand edge firewall/VPN security appliances in the small to medium enterprise markets, a sector that analyst In-Stat/MDR expects to achieve a compound annual growth rate (CAGR) of 30% and to reach $1.9 billion by 2007. This projection outstrips In-Stat/MDR's projection for the overall firewall/VPN market, set for a 20 percent CAGR from 2001 and to reach $4 billion in 2007.

SnapGear's family of Linux-powered edge security products

In addition to marketing security devices under its own brand name through systems integrators in 40 countries, SnapGear provides design, engineering, and fulfillment services for network appliances providing secure Internet communications. SnapGear's OEM partners include Vivendi, Hitachi, and others.

SnapGear's security-optimized SnapGear Linux distribution was recently in the news for being the first production Linux distribution based on a 2.6 kernel. SnapGear Linux is based on the uClinux kernel, to which SnapGear has made many major contributions.

uClinux is a “shadowing” (not a fork) of the main Linux kernel. It is designed to run on micro-controllers and other hardware devices such as PDAs that lack hardware memory management units (MMUs). uClinux has been ported to more than 100 platforms, according to SnapGear, and runs in more than 20 million devices globally.

Asked how the acquisition will affect SnapGear's embedded Linux projects, its uClinux-based Linux distribution, and its original equipment manufacturing (OEM) business and board design offerings, SnapGear CEO Rick Stevenson said, “We don't anticipate any major changes in that regard. We'll continue to be good open source citizens and we also intend to keep and grow the OEM business.”

CyberGuard

CyberGuard says its application-level firewalls and virtual private network (VPN) appliances are based on security-hardened UNIX and incorporate “multi-level security” (MLS). MLS treats each layer of the secure operating system discretely, according to CyberGuard, separating for example network traffic from system components. CyberGuard's appliances hold Common Criteria Evaluation Assurance Level 4+ (EAL4+) certification, the most prestigious and rigorous IT security evaluation available.

“SnapGear is an ideal acquisition for CyberGuard,” said CyberGuard president Pat Clawson. “First, it rounds out our product offering and allows us to meet the demand of enterprise customers who want efficient, dependable security at the edge of their networks. Second, it brings new technology products and expertise into our portfolio since SnapGear incorporates embedded Linux security into their appliances. Third, because SnapGear targets a different market than CyberGuard, their worldwide distribution channel will complement, not replicate, ours. We believe this can generate revenue growth for both entities.”

“The acquisition of SnapGear allows us to offer the same full range of products as some of the largest broad-spectrum security appliance providers,” continued Clawson. “We will be able to compete more effectively in large enterprise deals where customers are looking for a complete solution that includes high-end application-level security for the core of the enterprise and scalable security devices to protect the edge of the enterprise. This is especially attractive in emerging markets where our company is rapidly expanding. What makes all of this even more attractive is that our next generation central management product, Global Command Center, will make managing large numbers of security devices throughout a complex enterprise environment simpler than ever before.”

Terms of the deal

They companys say the transaction is being structured as a merger and is expected to close by year's end. When complete, management anticipates that the transaction will be “accretive to earnings per share.” The purchase price was calculated at approximately two times revenue for the trailing 12 months. Of that amount, $1.6 million will be in cash and the remainder in stock. There is additional earnout potential of $3.2 million in stock. Twenty-five percent of that is realizable if SnapGear revenues reach a minimum threshold of $12.5 million in the first 12 months after closing; the remaining 75 percent of the potential earnout would be pro-rated for achieving revenues between $12.5 and $15.0 million during that period.

 
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