Computer Security Firms to Consolidate

The pace of consolidation in the computer security industry quickened Monday, as Santa Clara-based McAfee Associates Inc. and others struck deals to expand their share of a growing but overcrowded market.

Two newly announced acquisitions and the completion of a third marked the start of what many analysts expect to become a rapid decline in the number of companies providing software used to protect networks from viruses, hackers and other intruders.

McAfee, a leading maker of anti-virus software, completed its previously announced purchase of Network General Inc. of Menlo Park for $1.3 billion in stock, then turned around and agreed to buy Pretty Good Privacy Inc. of Mountain View, a privately held maker of encryption software, for about $36 million.

Meanwhile, Axent Technologies Inc. of Rockville, Md., agreed to buy Raptor Systems Inc. of Waltham, Mass., in a $231-million deal that would combine companies whose software allows businesses to control access to files and data, whether from outsiders or internal employees.

Jim Balderston, an analyst at Zona Research Inc. in Redwood City, compared the companies to “animals trying to puff themselves up,” and said more deals are sure to follow.

The wave of consolidation is being driven partly by the fact that there are simply too many companies for the market to support, he said. But Balderston and others said the industry is also bracing for the possibility that much of the network security market could soon be swallowed by giant companies, such as Microsoft Corp. and Cisco Systems Inc.

“The hard stop for all of them is that most of this security technology is going to be absorbed by the makers of routers and operating systems--the hardware and software of networks,” he said.

McAfee, which has seen its annual sales grow from $20 million to about $365 million over the past four years, has been pushing the trend.

Earlier this year, the company struck a huge deal with Network General to create a new, combined entity called Network Associates Inc.

Shares of McAfee surged $6.25 to close at $52; Network General rose $2.63 to $21.50. Both trade on Nasdaq. Axent fell $1.75 to $19 on Nasdaq; Raptor fell $1.13 to $14.63 on Nasdaq.