July 12, 2010|By Gus G. Sentementes, The Baltimore Sun
Just a few years ago, SafeNet Inc., a Harford County technology firm, was wracked by a stock options scandal that sent its former chief financial officer to prison, tanked its stock price and eventually led to investors' taking the company private.
But on Monday, Belcamp-based SafeNet announced that it is ready to hit Wall Street again. The company disclosed in a filing with the Securities and Exchange Commission its plans to go public in a $300 million stock offering — one of the biggest IPOs by a Maryland company in years.
"SafeNet's business has undergone a transformation," said Donna St. Germain, a SafeNet spokeswoman. "By returning to the public markets, we can continue to build on that success."
The public stock offering signals a turnaround of fortune for SafeNet, whose former top executives faced criminal and civil probes beginning in 2006 for the backdating of stock options to inflate their value. During that period, the company was one of dozens of technology firms that were scrutinized by federal investigators for the way they handled stock options for executives.
With the federal probe behind it and having posted three years of revenue growth, SafeNet hopes to garner a piece of the federal government's multi-billion dollar spending on cybersecurity. The company, which is still unprofitable, notes in its SEC filing that "cyber attacks on the federal government have increased in volume and sophistication" and that "such attacks could be catastrophic to national security, defense, financial systems and critical infrastructure."
The company makes cybersecurity products for complex data networks and sees opportunities in both government and commercial markets, St. Germain said. Industry also has stepped up spending to protect digital assets and unauthorized breaches of information networks, notes SafeNet, which counts Johnson & Johnson and Citigroup among its clients.
In its filing Monday, SafeNet cited several market research reports that estimate various information technology security markets are poised for steady growth over the next three years. One study found that federal spending on cybersecurity applications would increase from $8.3 billion this year to $11.7 billion in 2014.
James Richardson, executive director of the Harford County Office of Economic Development, called SafeNet "a great corporate citizen" that will probably benefit from its location in the county. Richardson said that the military's base realignment and closure effort is shifting federal workers, contractors and new businesses to the county.
SafeNet, which lists the departments of Defense and Homeland Security as clients, likely already has relationships with Fort Meade and the National Security Agency in Anne Arundel County, he said.
"They're perfectly situated," Richardson said.
Nonetheless, SafeNet's executives will have to demonstrate to institutional and private investors that they fixed the management woes at the company, said Douglas M. Schmidt, chief executive of Chessiecap Securities Inc., a regional investment banking firm in Bethesda.
"They have to prove to the public buyers that the company is fixed and it has great growth potential," Schmidt said.
In recent years, SafeNet has been on a growth spurt, mainly through the acquisition of three firms. In early 2007, SafeNet had 1,040 workers. As of last month, it employed more than 1,600, including 230 at its Belcamp headquarters.
Revenue at SafeNet grew from $300 million in 2007 to $404 million last year, but the company posted losses during that period, including a $49.7 million loss last year, according to its filing with the SEC.
David Menlow, president of IPOfinancial.com, an investment research firm in Millburn, N.J., said that whether SafeNet's public offering attracts investors will depend on how cheaply the shares are priced and its future business prospects. At the moment, Menlow said, public offerings for technology companies are one of the few bright spots on Wall Street.
"The company has been losing money the last four years; that's not a story worth telling, unless there's going to be a dramatic turnaround," Menlow said.
Technology companies in Maryland are increasingly testing the public markets this year after fewer companies went public in the recent market downturn. Last month, BroadSoft Inc., a Gaithersburg company that sells Internet voice technology services to businesses, went public with a $67.5 million offering. KEYW Corp., a Hanover-based cyber security firm, also last month filed plans for a $100 million initial public offering.
SafeNet plans to use an unspecified portion of the money raised in the stock sale to repay part of more than $389 million in debt expected to come due over the next five years, according to its SEC filing. Other uses of the money could include funding organic growth strategies and additional acquisitions, according to St. Germain.
