Rainbow Technologies to Acquire Mykotronx

Rainbow Technologies Inc. said Friday that it is acquiring a Torrance maker of products to protect software against piracy.

Rainbow, based in Irvine, traded 1.8 million shares of its stock for all the shares of Mykotronx, a privately held company. Though the companies did not disclose the terms of the deal, it would be valued at $29.5 million based on Friday’s closing price of $16.38 a share.

Analysts praised the move, saying that Rainbow needed to make an acquisition to increase its long-term profitability. Wall Street responded positively as well, boosting Rainbow’s stock price up 75 cents a share to close at $16.38 in Nasdaq trading.

“They have about 60% of the software security market,” said John Girton, an analyst with Van Kasper & Co. in San Francisco. “But that business is not growing much anymore.” Girton said the acquisition of Mykotronx brings Rainbow closer to its goal of moving into the corporate security market.

Mykotronx makes devices that protect voice, data and wireless transmissions. Its main customer is the U.S. government.

Mark Matheson, an analyst with Crowell Weedon & Co. in Los Angeles, warned that short-term earnings will suffer as a result of the purchase, but “over the long run it will be good. . . . It will help them diversify out of being a one-product company.”

Rainbow spokeswoman Ann Jones said the two companies complement each other.

“They are more experienced in hardware, and we are into software,” she said.

The acquisition is still subject to shareholder approval.