This week, Dell (NASDAQ:DELL) agreed to purchase SonicWall, which is a provider of corporate security software. While the price tag wasn’t disclosed, the valuation is rumored to be around $1.2 billion. SonicWall went private in 2010 at $717 million.
The deal is further sign of how the security industry remains a critical priority for enterprises. Let’s face it, there seems to be no end to malicious computer threats. A 2011 report from Verizon (NYSE:VZ) estimates the global cost of such mayhem at $1 trillion.
Hackers are also getting more opportunities to wreak havoc. Smartphones and tablets are vulnerable to more attacks. At the same time, cloud operators are also likely to be big targets.
The result is that the security software market is expected to grow at a hefty pace. According to a report from IDC, security spending is predicted to go from $27 billion in 2010 to $38 billion in 2014.
And as Dell’s deal underscores, merger and acquisitions activity should remain robust. There are many large companies — like IBM (NYSE:IBM), Microsoft (NASDAQ:MSFT), Oracle (NASDAQ:ORCL) and Intel (NASDAQ:INTC) — that want a bigger piece of the market.
So, what are some interesting stocks in the security field that should benefit from these mega-trends? Let’s take a look:
This company came public in November at $18 per share and has since gone on to be a top performer. The current stock price is $38.18.
Yet there could be more gains. Imperva is leader in the “data security” market, which involves protecting sensitive assets like credit card numbers, intellectual property and other confidential information.
Company founder and CEO Shlomo Kramer certainly understands the dynamics in the security market. After all, he helped create Check Point Software (Nasdaq:CHKP), one of the top providers of Internet security software (now with a market cap of $11 billion).
For the first nine months of 2011, Imperva’s revenues spiked by 43.2% to $55 million. True, there was a loss of $8.8 million, but this is because the company continues to invest aggressively in its marketing and R&D.
The founder of this company is Ken Xie, another pioneer in the security business (here’s my interview with him). He started NetScreen in 1997 and later sold it for $4 billion to Juniper Networks (NASDAQ:JNPR).
At Fortinet, Xie saw a big opportunity to develop a broad-based security platform, which turned into a new category: unified threat management. At the core of this is FortiGuard Labs, which has 140 security experts who monitor global threats on a 24/7 basis. It’s a major barrier to entry.
Last year, Fortinet posted a 34% increase in revenues to $433.6 million, and free cash flow was a hefty $135.2 million.
This company plans to come public in a month or so. And the deal is likely to be red hot.
Splunk develops software tools that make it easy for companies to analyze their data. It has turned out to be a great way to detect security threats in real time.
Splunk has over 3,300 clients, which pay a licensing fee based on indexing capacity. So, as data growth continues to explode, so should the revenues for Splunk. In fact, from fiscal 2009 to 2011, revenues leaped from $18.2 million to $66.2 million.
Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “The Complete M&A Handbook”, “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli or reach him via email. As of this writing, he did not own a position in any of the aforementioned securities.