Cybersecurity firm Symantec Corporation SYMC recently completed the acquisition of Arizona-based LifeLock Inc. in less than three months from signing the deal. The two companies had entered into a definitive agreement last November, under which Symantec agreed to pay $2.3 billion in cash to make this buyout.
Founded in 2005 by Robert J. Maynard and Todd Davis, LifeLock offers identity theft protection services primarily in the United States. The company got itself listed in 2012 and currently has over 4.4 million customers. In June, Elliott Management Corp. unveiled that it owns an 11% stake in the company.
The company, under its consumer segment, protects subscribers through monitoring identity-related events, such as new account openings and credit-related applications. Under the enterprise segment, it protects customers by delivering on-demand identity risk and authentication information about consumers.
Its customers include financial institutions, telecommunication and cable services providers, government agencies, technology companies, large retailers, automobile and mortgage lenders, and e-commerce providers.
Does the Deal Make Sense for Symantec?
In our opinion, the acquisition will be a strategic fit for Symantec, which is trying hard to expand its business in the high growth area of next-generation cybersecurity. The acquisition will help Symantec enhance its capabilities in identity protection, which is currently a huge concern for almost every sector, be it financials, retail or technology.
Per Symantec, over 650 million people worldwide, including one-third of American citizens, were victims of cybercrime last year. The company also revealed that the digital safety market is anticipated to be approximately $10 billion while in the United States alone the total addressable market is projected to include 80 million people.
Therefore, we believe that the acquisition will enhance Symantec’s capabilities in identifying theft protection solutions, thereby enabling it to capitalize on the growing opportunities in the space.
Apart from this, the acquisition will broaden Symantec’s customer base. The company has an existing customer base of over 65 million. Therefore, we believe that the buyout will not only enhance the value of Symantec’s identity management platform but will also be accretive to its top- and bottom-line results. Symantec expects the acquisition to be accretive to its non-GAAP earnings per share in fiscal 2019.
Per the company press release, “Symantec’s acquisition of LifeLock brings together the #1 leader in consumer security with a leading provider of identity protection and remediation services. The combination will create the world’s largest consumer security business with over $2.3 billion in annual revenue based on last fiscal year revenues for both companies.”
Of late, Symantec’s top and bottom lines have been under pressure due to persistent weakness in PC sales and loss of market share in the data storage segment. Additionally, intensifying competition from Palo-Alto Networks and FireEye has been eroding its market share in the enterprise segment.
As a result, the company has been aggressively restructuring its business. In doing so, on Jan 29, 2016, the company closed the sale of its Veritas business for $7.4 billion to Carlyle Group. We believe that the deal has provided Symantec with much-needed funds to invest in fast-growing markets.
The sale of the Veritas business provided Symantec with the financial flexibility to take the acquisition route to transform its struggling business. In August, the company completed the acquisition of Blue Coat, a leading web security solution provider, from private equity firm Bain Capital for a total cash consideration of $4.65 billion. Blue Coat’s security solutions allow organizations to protect their web gateways from cyber attacks.
We believe that these acquisitions will enable Symantec to strengthen its position in the enterprise security market.
It should be noted that the company’s restructuring initiatives have been appreciated by investors as reflected from its share price appreciation over the last one year period. During the said period, the stock has returned 52.7% compared with the Zacks categorized Computer-Software industry’s gain of 29.1%.
However, it carries a Zacks Rank #4 (Sell). This is probably due to its recently provided revenue outlook for the fourth quarter of fiscal 2017, which fell short of our estimates. This undermines the company’s growth potential. Although the company’s restructuring initiatives appear to be in the right direction, we are cautious about the payback period.
Some better-ranked stocks in the Computer-Software space are Check Point Software CHKP, Imperva IMPV and Intuit Inc. INTU. Of these, Check Point Software sports a Zacks Rank #1 (Strong Buy) while Imperva and Intuit carry a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.
Check Point Software has an estimated long-term EPS growth rate of 10% and has witnessed upward estimate revision for first-quarter and full year 2017 over the last 30 days.
Imperva has an expected long-term EPS growth rate of 21.7% and has witnessed upward estimate revision for first and second quarters of 2017 over the last seven days.
Intuit has an expected long-term EPS growth rate of 15.1% and has witnessed upward estimate revision for second and third quarters of fiscal 2017 over the last seven days.
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