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Sun Microsystems to Buy Austin, Texas, Maker of Security Software

Posted on: Wednesday, 19 November 2003, 06:00 CST

Nov. 19--Austin's string of acquisitions continued Tuesday, with server giant Sun Microsystems Inc. saying it will buy Austin security software firm Waveset Technologies Inc.

The price wasn't disclosed, but a source close to the deal put it at about $100 million. The transaction is expected to close by the end of the year, Sun said.

This is the seventh acquisition of an Austin technology company since April. All but two were backed by venture capitalists. Entrepreneurs and their investors are taking advantage of a stabilizing economy and a renewed appetite for high-tech businesses.

"In many ways, Austin is back to the point where you can start a company, grow it over three years, and then look to an initial public offering or a sale," said Waveset chief executive Mike Turner. "From an Austin standpoint, the message is that technology is coming back strong."

Founded in 2000, Waveset creates so-called identity management products that helps companies control access to computer networks by managing passwords and user profiles for employees, customers and business partners. It posted $8 million in revenue in 2002, according to Hoover's Inc. estimates.

Analysts said the deal is a good fit.

"Sun in recent years has taken a back seat in identity management, and Waveset immediately brings them into contention as a player," said Mike Neuenschwander, a senior analyst at Burton Group, a research firm in Midvale, Utah. "Sun gets really strong technology, and Waveset gets the resources of a large corporation."

Sun, based in Santa Clara, Calif., is one the biggest names in computer hardware. It's the No. 3 maker of servers that power Web sites, handle e-mail and run corporate computer networks. The company claims it sells more than 80 percent of the servers connected to the Internet. It also sells its own software to run the networks.

Waveset employees, all of whom had stock options, also are winners in the all-cash deal.

"We wanted to reward them for their three years of hard work," Turner said. "Some of the early folks are looking at a seven-figure outcome. We think that's a pretty cool reward."

The deal also should pay off for Waveset's investors, including Austin Ventures, Lightspeed Venture Partners and Silverton Partners. Waveset raised $30 million, and it still has about $15 million, Turner said.

Waveset will become part of Sun's software group, with its products folded into Sun's own identity management software, Java System Network Identity Services. Waveset's 100 employees will remain in Austin, and Turner will become vice president of Sun's identity management group, officials said.

"In Waveset we saw a proven management team that knows how to run a business; we saw a very solid Fortune 500 customer base; and we saw products that will become an integral part of Sun's software organization," said Jonathan Schwartz, Sun's executive vice president for software.

Turner said the deal will enable Waveset to grow in a market that is rapidly consolidating. At least a dozen companies are selling competing software. Last year, Tivoli Systems Inc., the Austin-based subsidiary of IBM Corp., acquired Waveset rival Access360. IBM would not say how much it paid for Access360, although estimates ranged as high as $200 million.

Waveset had a bright future as an independent company, its founders said. But Sun's deep pockets and customer base were a powerful attraction.

"This market has gotten so heated up that we felt the faster way than to grow organically was to partner with someone like Sun," he said. "It accelerates our business by a year to two years."

"Waveset has 100 people; Sun has a global sales force of 7,000 people," said co-founder and President Mark McClain.

The company's four founders -- Turner, McClain, Kevin Cunningham and Bill Kennedy -- have seen how the strategy of a small software company teaming with a technology giant can pay off. Before founding Waveset, all were executives at Tivoli Systems, which was sold to IBM in 1996.

"We saw firsthand the advantages of taking the resources of a large company and using them to grow," McClain said.

Waveset is the second major deal involving Sun and an Austin-related company this week.

On Monday, Sun chief executive Scott McNealy announced his company would develop a line of servers using Advanced Micro Devices' new Opteron chip. Sun already has about 350 workers in Austin who design software and advanced processors.

BUYING SPREE: AUSTIN COMPANIES GET NEW OWNERS

Recent acquisitions involving Austin-based companies:

--April 10: Surgient Networks Inc. acquires ProTier Corp., a startup that makes software for online sales demonstrations, for an undisclosed price.

--May 12: Eastman Kodak Co. says it will buy Applied Science Fiction Inc., which makes digital photo technology.

--June 2: Abbott Laboratories Inc. says it will buy Spinal Concepts Inc., an Austin medical device maker, for $170 million.

--July 11: Austin Ventures says it will buy memory maker Staktek Inc. for about $100 million.

--July 18: Sanmina SCI Corp. says it will buy Austin-based server designer Newisys Inc. for an undisclosed price.

--Aug. 12: Austin-based Pervasive Software Inc. says it will buy Austin software company Data Junction Corp. for $52 million in cash and stock.

--Tuesday: Sun Microsystems Inc. says it will buy security software company Waveset Technologies Inc. for an undisclosed price.

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(c) 2003, Austin American-Statesman, Texas. Distributed by Knight Ridder/Tribune Business News.

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