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1/28/2007
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Is Bharosa Acquisition Bait?

Authentication specialist may be for sale, but its CEO is not looking to pair up with another security pure-play

Whether authentication specialist Bharosa is just flirting or looking for a more lasting commitment, speculation is afoot about the startup's future.

"I happen to know that they are for sale, they have hired bankers," said an industry analyst, who asked not to be named. "The whole notion of authentication is heating up, particularly around these financial services breaches."

Bharosa is a bit more coy. "I have no comment about being in play," says CEO Jon Fisher, while admitting that his firm has received acquisition overtures. But he does not want to see the company fall "into the wrong hands."

What does he mean by that? "Selling the company to another pure play security vendor is not what I envision," he says. "I don't want to make a wrong move where the technology can't be leveraged around the world."

Bharosa essentially offers two products: "Tracker" verifies the device a user is coming from and assesses the threat the user poses; "Authenticator" is a virtual token to protect sensitive data, such as passwords or PINs. (See Bharosa Launches 3.5 and National City Taps Bharosa.)

"To our knowledge, they are the only pure-play vendor doing strong authentication and fraud detection," said Nick Selby, a senior analyst at The 451 Group, highlighting a recent burst of activity in this space, in a note last week. "The last acquisition was Entrust's acquisition of Business Signatures for $50 million," he noted, adding that RSA also bought security startups PassMark and Cyota. (See Entrust Bags Business Signatures, RSA Snatches Up Competition Passmark, and Add Another Bolt to the Cyber Door.)

The analyst adds that Bharosa's technology could dovetail nicely with any number of large vendors: "It could fit nicely into the portfolios of a number of companies, including Verisign, RSA, IBM, and even, conceivably, Oracle."

Bharosa claims 30 enterprise customers, which include three of the top 10 U.S. banks and five of the country's top 25 credit unions. Notable clients include Wells Fargo, the U.S Air Force, and the Desert Federal Credit Union. (See Banking on Multifactor Authentication.)

CEO Fisher says the 50-employee company, which has racked up $2 million in funding, has been profitable for a year. "We're south of $20 million in annual revenue, but certainly north of $5 million," he adds.

Our anonymous source thinks that even if Bharosa gets bought, it is not likely to involve mega-bucks: "It would be a modest valuation –- if they get taken out for $30 million, they would be dancing in the halls."

For a big-name vendor, a deal of that size would hardly break the bank, according to the analyst. "For a company like EMC, a $20 million acquisition doesn't have to go through a lot of approvals," he says. "Cisco is making all kinds of acquisitions in the security space, so it would not be a stretch for them to buy someone in authentication."

— James Rogers, Senior Editor Byte and Switch

  • Bharosa Inc.
  • Cisco Systems Inc. (Nasdaq: CSCO)
  • EMC Corp. (NYSE: EMC)
  • Entrust Inc.
  • The 451 Group
  • IBM Corp. (NYSE: IBM)
  • RSA Security Inc. (Nasdaq: EMC)
  • VeriSign Inc. (Nasdaq: VRSN)

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