(FROM THE WALL STREET JOURNAL 4/20/15)
By Doug Cameron
Raytheon Co. is betting it can leverage the cybersecurity skills
it honed for the U.S. military and intelligence agencies to sell to
banks and retailers, investing almost $1.7 billion to establish a
stand-alone business in an area where its defense peers have
struggled to make money.
The company plans to announce Monday that it bought control of
Websense Inc. from private-equity firm Vista Partners LLC. Austin,
Texas-based Websense, which has 21,000 data-security clients, will
form the core of a new cyber joint venture with forecast sales of
$500 million this year and margins of around 20%.
Raytheon Chief Executive Tom Kennedy said the threat of
cyberattacks such as the one suffered last year by Target Corp. is
increasing as cloud computing and mobile services make companies
more vulnerable to costly electronic intrusions by state-sponsored
hackers, terrorists, organized crime or insiders.
"CEOs are shaking in their boots," said Mr. Kennedy, who took
the helm of the fourth-largest U.S. defense contractor by sales in
March of last year.
Raytheon is paying the equivalent of more than four to five
times Websense's annual sales, a pricey multiple for the defense
industry. The deal is the largest acquisition in a decade by one of
the nation's five prime defense contractors. Those companies
collectively have done dozens of deals aimed at parlaying their
Pentagon experience into commercial work, with mixed results.
Defense companies have found it tough to convert salespeople who
are used to dealing with the Defense Department to selling cyber
products to other clients, while the Pentagon has been reluctant to
allow contractors to transfer technology to their nonmilitary
customers.
Raytheon executives said the Websense deal addressed both
issues. Websense has an experienced commercial sales staff, while
Raytheon has deals with the Pentagon to use some intellectual
property in the commercial sector.
Raytheon has made the defense industry's most concerted push
into cyber, with 14 acquisitions since 2007, including the $420
million purchase of Blackbird Technologies in November.
With dozens of commercial cybersecurity firms springing up,
defense companies have found it tough to gain traction. General
Dynamics Corp. last week sold a commercial cyber firm it acquired
three years ago, and plans to focus on government work. Boeing Co.
made a similar move in January, but Lockheed Martin Corp. is
continuing to target commercial cyber business.
Websense "would clearly take Raytheon well into the commercial
cybersecurity space, which we believe would involve significant
risk," said Sanford C. Bernstein & Co. analysts in a recent
report on the sector.
Websense CEO John McCormack, who will head the new Raytheon
venture, said the focus of commercial cyber has shifted from
deterring threats to limiting their damage. "The days are gone when
you can prevent intrusion," he said in an interview.
He said Websense has outperformed a global commercial cyber
market, growing about 8% a year, with a top 10 market position in
monitoring Web gateways and data-loss protection.
Raytheon, which is based in Waltham, Mass., predicted the joint
venture would deliver high-single-digit revenue growth next year
and mid-double-digit growth in 2017, and would be profitable from
day one. Raytheon will have an 80% stake in the new cyber venture,
with Vista Partners holding 20%.
Raytheon is investing $965 million in cash, providing a $600
million loan and injecting $400 million of existing cyber assets
into the as-yet unnamed venture. Vista Partners, which took
Websense private for $890 million in 2013, will invest $335 million
in the venture.
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