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Fortinet Acquires enSilo For Edge Security Technology

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About: Fortinet, Inc. (FTNT)
by: Donovan Jones
Summary

Fortinet has acquired enSilo for $20 million in cash consideration.

enSilo has developed endpoint security technologies for edge cloud applications.

With the acquisition, FTNT is acquiring a partner company as it seeks to provide a broader range of capabilities as customers consolidate vendors in an increasingly complex IT environment.

Quick Take

Fortinet (NASDAQ:FTNT) announced that it has acquired enSilo for $20 million in cash.

EnSilo has developed endpoint security software solutions for edge cloud applications.

With the deal, FTNT has acquired a partner company that should present minimal integration risk while continuing to provide customers with a more complete set of offerings as they consolidate vendors in an increasingly complex cloud operating environment.

Target Company

San Francisco, California-based enSilo was founded in 2014 and provides endpoint security software solutions globally.

Management is headed by Co-Founder and CEO and Founder Roy Katmor, who was previously Sr. Director, Security Product Strategy for Akamai Technologies.

Investors have invested at least $51 million in the company and include Rembrandt Venture Partners, Lightspeed Venture Partners, Viola Ventures, and Counterview Capital. Crunchbase

Market & Competition

According to a market research report by Global Market Insight, the global endpoint security market was valued at $4.1 billion in 2016, as shown by the graphic below:

The report expects the endpoint security market to reach $7.5 billion by 2024. This represents a CAGR of 7% between 2017 and 2024.

The North America market is expected to provide the majority of market demand for endpoint security through 2024.

Major vendors that provide endpoint security solutions include:

  • AhnLab (KOSDAQ:053800)

  • Bitdefender

  • Cisco (CSCO)

  • Comodo Group

  • Cylance

  • ESET

  • F-Secure (OTCPK:FSOYF)

  • IBM (IBM)

  • McAfee

Source: Sentieo

Acquisition Terms and Financial

Fortinet disclose the acquisition price and terms in a form 8-K as 'approximately $20 million in initial cash consideration, $2 million of which is to be held in escrow until at least October 2020.'

FTNT didn’t provide a change in financial guidance as a result of the deal.

A review of the firm’s most recent published financial results indicate that, as of September 30, 2019, FTNT had $1.9 billion in cash and short-term investments and $2.3 billion in total liabilities, with no long-term debt and which deferred revenue accounted for $882 million.

Free cash flow for the nine months ended September 30, 2019, was $573 million, so the firm has ample resources for small acquisitions such as this one.

In the past 12 months, FTNT’s stock price has increased 20.4% vs. the U.S. software industry’s rise of 26.8% and the overall U.S. market’s growth of 11.2%, as the chart and corporate events graphic indicates below:

Source: Simply Wall Street

Earnings surprises have been positive in all twelve of the last twelve quarters, as the chart shows below:

Source: Seeking Alpha

Analyst sentiment in recent earnings calls has been slowly dropping, as the linguistic analysis shows here:

Source: Sentieo

Commentary

FTNT has acquired enSilo to strengthen its real-time automated detection and response capabilities.

As Fortinet Founder, CEO and Chairman Ken Xie stated in the deal announcement,

Manual threat hunting or point security solutions are ineffective when managing or securing these new environments. Instead security and the network need to be integrated and orchestrated to enable advanced threat containment at network speeds. In acquiring enSilo, we add automated, real-time detection, protection, and response enhancements to our Fortinet Security Fabric to further protect endpoints and corresponding edge data.

As customers continue to consolidate vendors due to increasingly complex operating environments, the pressure on service providers will be to add capabilities throughout as much of the stack as possible.

I’ve been seeing this trend across numerous enterprise IT categories, and it is a result of the ongoing and multi-decade transition to cloud environments which are becoming more complex due to a combination of regulatory and business imperatives.

I expect to see additional ‘team and technology’ acquisitions such as this, which will enable Fortinet to quickly acquire partner firms that have minimal integration risk and will speed its expansion and desirability as an integrated service provider in a rapidly changing security market environment.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.