Security and wide-area network acceleration company Blue Coat Systems Inc. has made a deal to buy Packeteer Inc., a longtime WAN optimization vendor, for about $268 million.
Blue Coat will integrate features of Packeteer products, including the company's traffic prioritization technology, into its own Blue Coat ProxySG line of appliances, according to a company statement. The deal will also help Blue Coat reach more customers through Packeteer's well-established global sales and distribution channel. The company expects significant cost savings almost immediately.
Packeteer, founded in 1996, was an early developer of appliances that could identify different types of packets in the traffic going over a WAN and enable administrators to shape traffic in order to make critical applications perform better. This and other WAN optimization techniques are widely used to speed up data transfers and application performance over long distances, helping enterprises centralize IT resources and maintain global operations. Worldwide, Packeteer has more than 10,000 customers and an installed base of more than 50,000 products, according to Blue Coat.
Blue Coat, also founded in 1996, makes a variety of appliances for securing and speeding up applications over WANs, and it claims to have more than 8,000 customers.
Both companies are publicly held and based in Silicon Valley, with Blue Coat in Sunnyvale, Calif., and Packeteer in nearby Cupertino. Blue Coat will buy Packeteer with a combination of cash and an $80 million private placement of convertible notes. The deal will consist of a tender offer for all of Packeteer's shares, followed by a merger of Packeteer with a subsidiary of Blue Coat. The deal is expected to close this quarter.
Blue Coat expects a reduction in head count following the buyout. It has about 950 employees and Packeteer has 400 to 450, said Brian NeSmith, president and CEO of Blue Coat. Packeteer President, CEO and Director Dave Cote doesn't wish to stay on at the merged company, according to NeSmith.
Blue Coat's offerings are primarily focused on controlling how enterprise employees use the Internet and protecting them from hazards there, according to NeSmith. Packeteer will bring stronger WAN traffic management, application classification and quality-of-service technology than Blue Coat has now, he said. But Blue Coat's products for branch offices outshine those Packeteer acquired with Tacit Networks in 2005 and will take precedence, he said.
"It's the combination of security and acceleration that, in my mind, is our greatest strength," NeSmith said. Security measures traditionally have been network speed bumps because of the processing required to inspect and deal with traffic. "Not only do we not slow it down, but ... whatever's authorized, we speed it up," NeSmith said.
WAN and Web optimization are a good fit because many enterprises are looking for both, said Michael Brandenburg, an analyst at Current Analysis Inc. But a long-term challenge for vendors such as Blue Coat is even greater consolidation of functions into network elements such as routers, he said.
"Cisco and Juniper have the dominant places at the edge, so their moves into the acceleration space are definitely a threat to stand-alone appliance vendors," Brandenburg said.
Blue Coat's bid of $7.10 per share represents about a 15% premium over Packeteer's Friday closing price of $6.18. After the deal was announced Monday, Packeteer's shares on the Nasdaq were up 78 cents, trading at $6.96.