Aliso Viejo-based business software maker Quest Software Inc. has taken a stake in Irvine security software startup SecureAuth Corp.
The value of the undisclosed investment is estimated at less than $10 million.
Quest is set to get a minority stake in SecureAuth, which used to go by MultiFactor Corp.
Executives at the two companies “kind of travel in the same circles,” SecureAuth cofounder and Chief Executive Craig Lund said.
“They have been following us for a couple of years,” he said of Quest.
Quest
Quest makes software that builds upon programs by Oracle Corp., Microsoft Corp. and others by making them more efficient.
It’s the county’s third-biggest software maker with $767 million in yearly sales and a recent market value of $2.3 billion.
SecureAuth has raised some $11 million to date, mostly from private equity firms and individual investors.
The startup’s namesake software verifies the identities of people in a company who are allowed to have access to physical and virtual networks.
The software acts like a “two-way handshake” that ties the user to a particular device on the network, according to Lund.
The company offers a subscription-based software service.
SecureAuth is seeing a boost from cloud computing, which lets companies store and run their data and software programs on outsourced servers.
Cloud computing helps companies cut down on the costs of running data centers by allowing files and software programs on their networks to be stored elsewhere.
Quest has made a big push into cloud software services in the past two years.
It’s a frequent acquirer of small software companies with innovative technologies, which it folds into its own vast product lineup.
Last year, Quest bought Austin, Texas-based software maker Surgient Inc. for undisclosed terms. Surgient makes what’s called cloud automation software, which helps corporations set up their own cloud computing networks.
Earlier in July, Quest snagged Germany’s Völcker Informatik AG, a privately held maker of software that helps manage security, access and identity verification for corporations.
SecureAuth and Quest are set to team up on some cross-selling, Lund said.
“They see us as being an exciting new technology for cloud security,” he said. “We are so complimentary to their portfolio.”
In return, SecureAuth gets bigger “reach.”
“We are still a relatively small company with just 25 people,” Lund said. “They have hundreds of salespeople and the worldwide marketplace to get our technology out there.”
A lot of Quest’s acquisitions start out as small investments.
Quest did its due diligence on SecureAuth before making the investment, Lund said.
“They really put us through the paces and for a while,” he said. “You would almost have to assume, yes, that they would invest in companies that they might find interesting M&A targets.”
There’s no option to buy built into the investment, Lund said.
“We actually negotiated on that for a while, because we wanted to keep our options open and available,” he said.
A few companies in the same sector as SecureAuth were snatched up by big players in the past year.
New York’s Computer Associates Inc. picked up Arcot Systems Inc. for $200 million and Palo Alto-based VMware Inc. bought TriCipher Inc. for undisclosed terms last year.
Customers
SecureAuth’s customers include schools, cities, banks, drug makers, retailers and other large companies.
Among them are 1-800 Contacts Inc., American Eagle Outfitters Inc., Station Casinos Inc., Yamaha Corp., Dish Network Corp., Eli Lily and Co. and IBM Corp.
The company was started in 2005 by technology security industry veterans Lund and Garret Grajek.
Both are cofounders of Waltham, Mass.-based Netegrity Inc., a maker of security software that went public in 1999 and was acquired in 2004 by Computer Associates in a deal valued at $430 million.
SecureAuth doesn’t disclose financials. The Business Journal estimates it sees about $5 million in yearly sales.
Last year, the company said it doubled customers and opened offices in Dallas and Chicago.
The company is eyeing profitability this year, Lund said.
