Competition in the email security market is intense. Most of the major endpoint security companies, Barracuda, Cisco (CSCO) Fortinet (FTNT), Mimecast (MIME), and Proofpoint (PFPT), have moved into email security — emphasizing training services to mitigate rising phishing threats. Plus, Microsoft (MSFT) has pushed into email security services that wrap around its core business productivity software Office 365.
The global email security market is expected to reach $18 billion by 2023, expanding at 22% from 2016, this report asserts. This growth has drawn the attention of venture capitalists. The latest VC deal is unique in that the smaller company is buying the larger firm.
Publicly traded Zix (ZIXI) is acquiring AppRiver for $275 million in cash. Zix is a Dallas-based maker of email archiving and security products including ZixMail which manages the key management to provide end-to-end email encryption that protects messages and attachments.
AppRiver is a privately held Florida-based MSP-friendly cybersecurity and Microsoft Office 365 cloud solutions provider specialist. AppRiver, founded in 2002, supports more than 60,000 companies globally in 2019.
Zix and AppRiver each have about 260 employees. As part of the M&A plan, Zix expects to generate about $8 million in cost synergies — which typically means that layoffs are coming. AppRiver CEO Michael Murdoch is exiting the combined firm. Zix CEO David Wagner would not rule out further job cuts.
CEO Wagner has lined up financial backers to help finance the AppRiver deal. Among the financial players are:
True Wind Capital will make a $100 million equity investment with the closing of the AppRiver acquisition.
SunTrust Bank and KeyBanc Capital Markets committed to a new five-year $175 million term loan and a $25 million revolving credit line.
The combined company, known as Zix, expects to generate roughly $200 – $207 million in annual recurring revenue in fiscal 2019, up 11% – 15% year over year. The deal is expected to close by March 31, 2019. Bu purchasing AppRiver, the new Zix will grow its channel from about 400 to 4,000 partners and its customer base will go from 20,000 to 60,000.
AppRiver is no stranger to acquisitions as it worked to position itself as a one-stop-shop for commercial cybersecurity services.
In October 2017, VC firm Marlin Equity Partners purchased a majority stake in AppRiver with intention of expanding its global footprint.
In March 2018, AppRiver acquired Canadian company Roaring Penguin for its anti-spam and machine learning technologies. In October of 2018, AppRiver acquired Total Defense, a provider of subscription-based endpoint security for consumers and small businesses.
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The last three places I have worked were AppRiver or Zix shops. It makes sense email is the gateway to the cloud for many firms. Email is mission-critical and complicated to secure so it gets moved to the cloud.
My experience with both firms was OK. We were an earlier adopter of hosted Exchange from AppRiver and then at a re-seller. In keeping with industry trends, my current employer moved from Zix as we moved to O365, maybe this deal is a year too late.
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Ralph Bach has been in IT long enough to know better and has blogged from his Bach Seat about IT, careers, and anything else that catches his attention since 2005. You can follow him on LinkedIn, Facebook, and Twitter. Email the Bach Seat here.
