Wednesday, October 25, 2006

Counterpane Bought: Investors Relax

Eighteen months after MCI bought MSSP NetSec, another telecom has bought another MSSP. This time, BT bought Counterpane. I guessed that Counterpane was desperate. At least the investors who poured four rounds of venture capital into Counterpane can realize some sort of return. The announcement concluded with this statement:

As at 31 December 2004 the audited gross assets of the business were $6.8m.

That doesn't sound very promising.

I expect a good amount of reorganization and removal of personnel. BT will want the low-level analysts to stay, but some will probably leave. The middle-managers will want to stay, but BT will send them packing. Since Counterpane's brain trust has largely disappeared, they only need to keep Bruce Schneier as their "visibility guy" or "mantlepiece."

Good luck to them -- I imagine they will be morphed into protecting BT's cloud.

Update: After reading helpful comments and stories like this, it appears Counterpane's investors took a big loss if the company sold for around $40 million. According to the Counterpane series C VC funding press release:

The Goldman Sachs Group, Inc., and Morgan Stanley Dean Witter Private Equity, who all invested further in this round, bringing the total capital raised by Counterpane to $58 million.

Then add $20 million of series D VC funding and the total is $78 million. It looks like the "return on investment" I mentioned earlier was very negative.

Finally:

Counterpane will run as a standalone operation until April 2007, before being integrated in to BT's Professional Services organisation.

4 comments:

Mike Rothman said...

Word has it that the deal was for 21.3 million pounds (about $35 million), which I think was probably pretty fair, given a maybe $20million run rate. I wouldn't think the investors are relaxing, but rather being a bit happy they got something out, but also ruing the day they heard about MSS.

I also wouldn't assume Counterpane would be doing much for BT internally. The scale of what a carrier needs to do is massive and taking that responsibility out of the UK would probably be a political hot potatoe (using the UK spelling :-).

Mike.

Brian said...

Richard,

As usual; very good reporting. Thanks!

JimmytheGeek said...

Why do you suppose the MSSP model hasn't caught on? Do businesses just not see the need for high-end security? Is it too hard to outsource? I would think you could find economies of scale.

Anonymous said...

Wrong, wrong, and wrong. All your info is wrong. I can't comment more due to confidentially reasons, but it is all wrong.

The picture is very bright for both BT and Counterpane employees.

You also are not familiar with how aquisitions work because not all VC's contributed to subsequent rounds, and therefore, the current active VC's can yield a nice profit.