Tripwire Preps for an Initial Public Offering

Fast-growing security company Tripwire has filed for an initial public offering. The lead underwriters on the deal include J. P. Morgan (JPM) and Thomas Weisel Partners (TWPG).

Deal-making has heated up lately in the tech security industry. Software maker McAfee (MFE) agreed to purchase Trust Digital, which provides security software for mobile phones. And Symantec (SYMC) shelled out $370 million for PGP and GuardianEdge, and also spent $1.28 billion for VeriSign's identity and authentication business.

It's likely that the transactions will continue as major software operators try to bulk-up to address the increasing number of security threats. There will probably also be more IPOs.

New Technologies Mean New Security Threats

Over the years, Tripware has built a strong platform to deal with a range of security and compliance breaches. This uses real-time scanning and analysis based on a library of 250 regulations, standards and best practices. In fact, Tripwire works with more than 150 technology systems and conducts over 89,000 compliance tests.

What's more, the company is likely to benefit from emerging trends, such as virtualization and cloud-computing, which expose systems to new outside threats.

According to a report from market intelligence firm IDC, the worldwide revenues for security and vulnerability management came to $2.6 billion in 2008 and are expected to reach $4.4 billion in 2013. This is the sweet spot for Tripwire.

The company already has a base of 5,4000 customers in 87 countries, which include 44% of the Fortune 500 and 27 of the 30 U.S. federal government executive branch agencies. Customers include AXA Financial, PepsiCo (PEP) and Disney (DIS).

And the financials are particularly strong. From 2007 to 2009, revenues went from $49.2 million to $74 million, with adjusted EBITDA increasing from $500,000 to $10 million. Tripwire has seen revenue growth and positive operating cash flows for the past six years.

IPO Prospects?

While the IPO market is shaky, the Tripwire offering will probably not hit the market until the fall. In other words, there is time for things to improve. Besides, there are only a handful of tech companies on the IPO calendar.

However, given the recent revved-up M&A activity, Tripwire could ultimately be sold to a larger player. And there is no shortage of possible suitors -- like IBM (IBM), McAfee, EMC (EMC) and Symantec -- that could pay a premium price for the company.