UPDATE: Symantec To Acquire Veritas For $13.5 Billion

Symantec Corp., the largest maker of antivirus software, has pulled off a blockbuster acquisition deal that will catapult it and data-management and storage vendor Veritas Software Corp. into an estimated $5 billion-a-year company, selling software for everything from desktop PCs to corporate data centers. The $13.5 billion all-stock transaction, revealed today, could give Symantec the edge it needs to take on the top systems management vendors, including IBM and Computer Associates.

The deal is seen as part of chairman and CEO John Thompson's long-held strategy to evolve Symantec from a provider of consumer antivirus and utility software into one of the world's largest providers of corporate security software. The Veritas buyout caps off a string of other deals that began in 2000 and will be ranked as one of the largest software-company acquisitions.

It combines Symantec's IT security products with Veritas' data-storage software, resulting in a broad product line that extends from desktop PCs to corporate data centers, the companies said in a statement. Approximately three-quarters of the combined company's business will come from business customers and one quarter from consumers.

"We see customers asking us for simpler solutions from fewer vendors. And the convergence of storage and security is a fairly obvious transaction," says John Schwarz, president and chief operating officer at Symantec.

Some IT managers said they were happy about the deal. "Generally, consolidation is good," says Vince Stephens, manager of network engineering for online real-estate site Homestore Inc., adding that he's in favor of having fewer security vendors to manage.

Thompson will continue to hold the top post in the combined company, while Veritas chairman and CEO Gary Bloom will become vice chairman and president. A new board will consist of six members of Symantec's current board and four from Veritas. The boards of directors of both companies have approved the deal.

This isn't Symantec's first acquisition aimed at data management. In the fall of 2003, the company acquired PowerQuest Corp. for its hard-drive management and real-time data-backup software for corporate systems. It's also been shoring up its security-software portfolio. In the summer of 2002, Symantec went on a shopping spree, acquiring managed-security services provider Riptech Inc. for $145 million, intrusion-detection software maker Recourse Technologies Inc. for $135 million, and threat-management and security-intelligence provider SecurityFocus for $75 million. The company also acquired security-management software maker Mountain Wave Inc. for $20 million in cash that year. Just last week the company acquired Platform Logic to strengthen it's weak spot in host-based intrusion prevention. The company also recently acquired application security consulting firm @stake, as well as anti-spam vendors TurnTide and Brightmail.

Information-security industry analysts say Symantec is working to position itself as a one-stop provider of security and network systems-management software and services. "They're starting to position against IBM, Computer Associates, Hewlett-Packard, and BMC Software," says Pete Lindstrom, an analyst at the security-market-research firm Spire Security.

By increasing revenue potential from companies, Symantec is also preparing for increased antivirus competition from Microsoft, which some analysts say has been heating up since Microsoft's 2003 acquisitions of antivirus-software maker GeCad and desktop-security maker Pelican Software. "Symantec has been heading in this direction for a long time," says John Pescatore, an analyst at Gartner. "Microsoft getting into the antivirus market would seriously impact Symantec's consumer-driven revenues," he says.

That's a threat growing increasingly real each day. Microsoft's competition against desktop-security software providers such as Symantec and McAfee Inc. is rising. Microsoft's Windows XP operating system armed with Service Pack 2 provides more security features, such as a powerful firewall, than any of Microsoft's other operating systems. On Thursday, Microsoft acquired anti-spyware company Giant Company Software Inc. for an undisclosed sum to build anti-spyware capabilities into its Windows operating system.

In an interview earlier this year with InformationWeek, Symantec's Thompson addressed the question of Microsoft's potential foray into the antivirus market. "The question is how you carve out opportunities for yourself. Where can you distinguish yourself from what Microsoft has done, or plans to do?" he said. "We've been successful at that for 21 years, and my expectation is that we will continue to be successful at that."

Of course, Symantec will have to overcome the inherent challenges of an acquisition--particularly such a massive, multibillion-dollar deal--and some are skeptical about the long-term prospects. "Seventy percent of acquisitions simply don't work out," Pescatore says. He cited several recent Symantec acquisitions as examples of what he says have reaped less-than-spectacular results. Symantec acquired firewall, VPN, and intrusion-detection vendor Axent Technologies in 2000 for about $975 million. "Most of that stuff disappeared," Pescatore says. "Symantec has an about-average track record of making these acquisitions work. They're not Cisco."

Some corporate security mangers also have their doubts. "When you have good point solutions and they get acquired by a larger organization, it often can stifle innovation. The products get lost in the large company's grand vision," says Chris Hoff, chief information security officer and director of enterprise security services for financial-services cooperative Western Corporate Federal Credit Union. "And what you're trying to accomplish with dedicated solutions don't always fit into the plans of a large vendor."