Will $1.3 Billion VeriSign Deal Bring Symantec More Security?

In yet another major acquisition in the tech world, Internet-security company Symantec (SYMC) announced after today's market close that it's buying VeriSign's identity and authentication business for $1.28 billion. Investors had speculated that a deal was brewing after Brian Robins, VeriSign's chief financial officer, abruptly canceled his appearance at a JP Morgan conference yesterday.

The deal comes amid an increase in tech mergers and acquisitions in recent weeks, including HP's (HPQ) $1.2 billion purchase of Palm (PALM) last month. It also marks a revving up of Symantec's dealmaking. The VeriSign deal comes less than a month after Symantec shelled out $370 million to buy two encryption-security companies, PGP and GuardianEdge.

In this latest acquisition, Symantec will pick up a premier security business, including assets like Secure Sockets Layer (SSL) Certificate services, the Public Key Infrastructure (PKI) services, the VeriSign Trust Services and the VeriSign Identity Protection (VIP) Authentication Service. These offerings provide security for 1 million Web servers and generate roughly $408 million in revenues , according to the merger presentation.

VeriSign has been aggressively divesting its businesses over the past year, selling its prepaid mobile services, its mobile messaging services, its financial settlement services for wireless carriers and real-time publishing services, among others. Even after all this, VeriSign still has a formidable business. In the latest quarter, VeriSign posted revenues of $264 million, up 4% from a year ago, and strong operating cash flows of $101 million.

VeriSign Gets Focused

VeriSign's main business is its Internet naming services. For example, the company operates an authoritative directory of all .com, .net, .cc, .tv, .name, .jobs and .edu domain names. Keep in mind that the company manages nearly 100 million active domains, which generates substantial amounts of recurring revenues. In fact, VeriSign added a record 8.1 million new domain name registrations during the latest quarter.

VeriSign's identity and authentication segment is also substantial, but doesn't necessarily mesh with its core naming business. It is, however, an excellent fit for Symantec. With the VeriSign business, Symantec will be able to authenticate people, secure mobile devices, prevent information loss and attack and even improve cloud security.

More importantly, the deal could open up a large market opportunity for Symantec, which expects the addressable market for server and user authentication to reach $1.6 billion by 2013. And with its large base of clients, the company will also be able to cross-sell Web security services and provide integrated services. Ultimately, this should help reduce costs and differentiate Symantec from its fierce rivals.

Meanwhile, with a slug of cash and a solid balance sheet, VeriSign sits in a nice position. Might it be preparing to make its own acquisitions? Perhaps. But it seems more likely that it will stick to its plan to focus on its naming business and infrastructure investments. As it is, it looks like the naming business is poised for growth. After all, online advertising is growing again -- and so is e-commerce. And, ultimately, that could spell growth for VeriSign's core business too.

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