Dell to Acquire SonicWall to Expand Network-Security Tools

By Beth Jinks March 13, 2012

Dell Inc. (DELL), the world’s third- largest maker of personal computers, agreed to buy SonicWall Inc. to gain network-security and data-protection tools, paying a price that analysts peg at between $1 billion and $1.5 billion. SonicWall, based in San Jose, California, had revenue of about $260 million in the past 12 months and about 950 employees, executives from both companies said today on a conference call to announce the deal. SonicWall’s technology detects and protects networks from intrusions and malware attacks, and helps protect data.

Dell is buying services and software businesses as the PC market faces competition from smartphones and tablets. Last month, the company hired CA Inc. Chief Executive Officer John Swainson to oversee the software push, and today he said security is an important part of that strategy.

“My goal is to make software a meaningful part of Dell’s overall portfolio, so that means that this is not the last thing you’re going to see from us,” Swainson said on a media call. “We are going to build and buy software assets that complement the overall Dell portfolio.”

Clients need to feel secure moving data to the so-called cloud, which allows them store data on the Internet, Swainson said. Dell will invest both “organically and inorganically” to expand in that sector, he said. Dell, which currently derives 54 percent of its sales from desktops and laptops, advanced 1.6 percent to $17.23 at the close in New York. The shares have risen 18 percent this year.

Cloud Offering

While the financial terms weren’t made public in a statement, Round Rock, Texas-based Dell probably paid between $1 billion and $1.5 billion, Peter Misek, a Jefferies & Co. analyst, wrote in a note.

“We think this adds more tools to Dell’s cloud stack,” wrote Misek, who recommends holding the company’s shares. Still, a unified product isn’t likely before 2013. David Frink, a Dell spokesman, didn’t immediately return an e-mail seeking comment on the price.

SonicWall was acquired in 2010, for about $717 million, by a private-equity group led by Thoma Bravo LLC and the Ontario Teachers’ Pension Plan.

Most of the company’s sales are to small and medium-sized businesses, with about 25 percent of revenue coming from larger “enterprise” customers, such as universities and regional financial institutions, SonicWall CEO Matt Medeiros said on today’s call. SonicWall is expanding its next-generation firewall business with its SuperMassive offering, Medeiros said. Its main competitors are Cisco Systems Inc., (CSCO) Juniper Networks Inc. (JNPR) and Fortinet Inc. (FTNT), he said.

Firewall Market

“The deal allows Dell to play in the next-generation firewall market,” Shebly Seyrafi, an analyst at FBN Securities, said today in a client note. “We believe that it will compete against leaders such as Check Point Software Technologies Ltd. (CHKP) and Palo Alto Networks Inc. primarily, and against Fortinet, Cisco, Juniper and Intel Corp.’s McAfee Inc., secondarily,” wrote Seyrafi, who rates Dell “sector perform.”

The SonicWall deal is expected to close in Dell’s fiscal second quarter, which ends July 31, according to the statement.

Dell’s latest security purchase follows its acquisition of SecureWorks Inc. last year, and KACE Networks Inc. in 2010.