VeriSign Purchasing 2 Firms

VeriSign Purchasing 2 Firms
Signio, Thawte make e-commerce software
Kelly Zito, Chronicle Staff Writer

Tuesday, December 21, 1999
San Francisco Chronicle | Feedback

Shares of Mountain View’s VeriSign Inc. soared almost 15 percent yesterday after the seller of Internet security technology announced plans to scoop up two privately held firms that develop e-commerce software for about $1.4 billion.

VeriSign said it will purchase Signio Inc. of Redwood Shores for stock valued at about $840 million and South Africa’s Thawte Consulting for stock valued at $575 million. VeriSign stock closed at $150.13 per share, up $19.19.

VeriSign is the No. 1 provider of “digital certificates” that verify and identify people and Web sites during online communication. Online retailers and others license the software to keep orders and credit card information sent over the Internet private and secure.

Thawte is the second-largest seller of digital certificates. After acquiring its biggest rival, VeriSign said it will control 90 percent of the digital certificate market.

By purchasing Thawte, which targets smaller e-commerce shops, VeriSign has both broadened and deepened its client base, said Nicole Schmidt, an Internet analyst at Josephthal & Co.

“VeriSign has been trying to target the high-end — BlueMountain, Amazon, Bluefly — Thawte is going after the Web sites of people selling widgets . . . who are operating on a shoestring budget,” she said.

Signio provides software that transmits online transaction data, essentially acting as a bridge between Web sites and credit card processors.

By acquiring Signio, VeriSign hopes to expand beyond the Internet-security market by offering payment services to online retailers and other merchants.

Although the two acquisitions will expand VeriSign’s market, Schmidt questioned the high prices VeriSign is paying — about 150 times revenues for the two companies combined. She estimates that Signio has only $1 million in annual sales and Thawte has $6 million to $9 million in revenues.

“In some ways there’s been a disconnect in the market,” she said. “It seems there’s an inverse relationship between revenues and valuation.”

She also said Signio appears to have limited growth opportunity because many companies like eToys, Kmart and Macy’s have already built their own payment processing systems.

But VeriSign chief executive Stratton Sclavos said both deals are worth the steep sums, particularly as more merchants shift online.

“The market is really in its infancy,” he said. “We’ve done 200,000 Web sites with our authentication services and we think the market is more like 10 million.”

VeriSign hopes to close the deals in the first quarter of next year. After the mergers, the company will employ about 530, including 400 in the Bay Area.

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