CyberGuard to acquire SnapGear

November 13, 2003: CyberGuard Corporation (CyberGuard), the technology leader in network security, announced that the company has signed an agreement to acquire SnapGear for approximately $16 million. SnapGear, a privately held company founded in Australia, is a leading developer of embedded Linux security and offers a popular line of edge firewall/VPN security appliances for the small to medium enterprise markets.

“SnapGear is an ideal acquisition for CyberGuard,” said Pat Clawson, president of CyberGuard. “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 transaction is expected to close by the end of the current quarter. When complete, management anticipates that the transaction will be accretive to earnings per share. The transaction will be structured as a merger. 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.

“The acquisition of SnapGear allows us to offer the same full range of products as some of the largest broad-spectrum security appliance providers,” said 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.”

According to market projections by industry analyst In-Stat/MDR in April 2003, the overall firewall/VPN market is projected to exceed $4.0 billion by 2007 with total forecasted market growth representing 20 percent compound annual growth rate (CAGR) from 2001. However, the small to medium enterprise market segment is projected to grow much faster, with an estimated CAGR of greater than 30 percent, reaching $1.9 billion in size by 2007.