Network security firm explores IPO

Undaunted by U.S.' scotching its sale to an Israeli company over security worries, Sourcefire looking into ways to grow


Martin Roesch's technology company was started in 2001 the same way many others begin - from his living room.

During its first year, Roesch's network security firm Sourcefire Inc. was running shipping and receiving from the foyer and conducting data operations from what is now the in-law suite at his Eldersburg home.

"It was definitely a startup," recalled Roesch, 36, who is now the company's chief technology officer.

Five years later, Sourcefire has grown to 150 employees with offices around the world, including two at its Columbia headquarters. The network security software Roesch developed is an industry leader. And despite last month's high-profile disappointment when the government blocked the $225 million sale of Sourcefire to Israeli-based Check Point Software Technologies Ltd. because of security concerns, executives say the company is poised to move forward.

Sourcefire is considering an initial public offering, executives said. And with the Check Point deal off, executives said the company's main focus is growing the business, gaining market share and improving profits.

Michele Perry, Sourcefire's chief marketing officer, said the company is "gunning for a fourth-quarter IPO."

"Last year, that was one of the options we had on the table that we were moving toward, and Check Point came out of the woodwork and tried to acquire us," Perry said. "So we're just back on our plan."

Wayne Jackson, Sourcefire's chief executive officer, was more measured in his remarks.

"We want to be in a position to be a public company in that time frame," Jackson said in an interview at his office this week.

Jackson, 44, said that Sourcefire's focus is to aggressively grow its business, so that the decision of when - or whether - to take the company public is within their control.

Sourcefire announced in October that it would be acquired by Check Point. But the acquisition raised national security issues and was under investigation by the Committee on Foreign Investment in the United States, the same agency that investigated Dubai Ports World's bid to run some operations at six U.S. ports including Baltimore's. Check Point announced late last month that it was pulling out of the deal.

With the Check Point deal behind them, Jackson said, Sourcefire is no longer focused on being acquired. He said the company has consulted with a bank about financing strategies to help it expand. Sourcefire has been profitable since the fourth quarter of 2005, Jackson said, while declining to provide specifics.

Sourcefire has the potential to be a billion-dollar company as it grabs a chunk of markets beyond intrusion prevention, Jackson said. He sees an IPO as one financing option but says it's more of a starting point than a finish line.

"Like any manager, I'd like to have as many options as I possibly can, so keeping the company strong enough to do [an IPO] is something I'd like to do, but it's not a management goal," Jackson said. "We're growing the company because we see a huge opportunity to be an industry leader."

Jeffrey W. Englander, an independent analyst who follows the information security industry, says going public is an attractive option for Sourcefire and returns them to the path they were on before the Check Point deal. Englander has no financial relationship with Sourcefire.

Sourcefire makes open-source intrusion prevention technology called Snort, which analyzes network traffic to protect against hackers. The company also makes software to manage that data. Additionally, Sourcefire makes real-time network awareness technology, which maps out exactly what the network looks like.

The intrusion detection and prevention market is expected to reach $700 million this year, Englander said. And Sourcefire's real-time network awareness adds a feature to the technology that many companies are looking for, he said.

"That's their secret sauce," Englander said. "It will not only prevent threats but look at different threats within your network, look at the configuration of your network, see where there are potential vulnerabilities and work to remediate those vulnerabilities in your network."

Snort, which Roesch invented, is a free product, and the code is available for anyone to see. But Englander said Sourcefire does not have any true direct competitors for its real-time network awareness technology.

Englander estimates that Sourcefire will have sales of about $53 million this year.

Kathy Smith, a principal with Renaissance Capital, a Greenwich, Conn., IPO research and investing firm, said it's a good time to be going public. The average stock price of companies that have gone public this year is up 21 percent from their IPO price, with about half of that return coming from the first day's trading.

There have been 46 IPOs this year, compared with 38 for the corresponding period last year, according to Renaissance Capital. Smith said technology companies typically make up about a third of the IPOs each year.

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