Software security maker SecureAuth Corp., one of the closely watched companies in Orange County’s developing cybersecurity hub, has agreed to a $200 million sale to El Segundo-based private equity firm K1 Investment Management.
Under the deal, announced last week, K1 will roll portfolio company, Core Security Inc. under the banner of SecureAuth, though branding decisions have yet to be determined.
SecureAuth Chief Executive Jeff Kukowski will lead the combined company from its Irvine base.
“It’s an incredibly exciting opportunity to take a new approach to better help our customers and the industry get to earlier detection and response to breaches,” he said.
The management teams will be combined, and Core Security Chief Executive David Earnhardt will become an adviser to the board.
Core, based in Roswell, Ga., offers vulnerability detection, network security, identity and threat awareness services.
SecureAuth’s subscription software, used by the likes of Southwest Airlines, Qualcomm, HBO, Western Union and Electronic Arts, verifies the identity of employees, customers and consumers who are allowed access to physical and virtual networks, and provides device recognition through what’s called adaptive authentication, in which a user seeking access is identified from a known device used on a previous log-in or through an unfamiliar device.
Clearance is confirmed through several applications, including single and multifactor authentication and biometrics, or how a user types or uses a particular device.
Its flagship SecureAuth IdP has drawn strong demand from the public and medical sectors, including the Los Angeles Police Department, Adventist Health System, the U.S. Navy, the University of Maryland and St. Jude’s Children’s Research Hospital.
“We have tremendous traction in compliance and security remediation, government, healthcare, financial services and retail,” said Kukowski, who was promoted to chief executive this year, replacing Craig Lund, who shifted to the chairman role.
The combined entity will have about 360 employees and over 1,500 customers across the globe, though most of its business is generated in the U.S.
“We are on the way to becoming a $100 million company,” said Kukowski, who declined to elaborate on financials beyond that.
Sales were projected to pass $30 million last year.
Toba Success
The SecureAuth sale marks another successful investment by Newport Beach-based Toba Capital, SecureAuth’s primary backer and OC’s largest venture capital firm. The software maker has raised more than $40 million since its 2005 inception.
“This was a great outcome for Toba, the investors and the management team,” Toba partner Matt Gless told the Business Journal. As K1 is taking a controlling interest in the combined companies, this “allows Toba to redeploy cap into new opportunities … great outcome for Toba, the investors and the management team,” Gless added. Toba will maintain a minority interest in the new company.
The investment was one of more than 40 active software companies in Toba’s portfolio, which also includes Newport Beach-based virtual reality content maker NextVR and Costa Mesa-based business website and social media services provider MoPro.
Toba has invested in several portfolio companies that have been acquired for more than $100 million. It backed SmartBear Software Inc., a Massachusetts company that sold a majority stake in May to private equity firm Francisco Partners for about $500 million.
Toba also had a stake in TerraForm Global Inc., a wind and solar farm operator in Maryland that agreed to a $787 million cash sale in March to Brookfield Asset Management Inc.
Vinny Smith, who launched Toba in late 2012 after netting nearly $1 billion in the sale of his Quest Software to Dell Inc., has grown Toba to an $800 million evergreen fund.
He told the Business Journal last month he’ll donate half of the profits from his expanding portfolio at Toba to charity causes and foundations this year and beyond.
An OC Hub Grows
SecureAuth is part of a growing cybersecurity hub in OC, which is home to fellow Irvine-based security software makers Cylance Inc. and CrowdStrike Inc., as well as electronic forensic investigator Susteen Inc., industrial Internet of Things security specialist Veracity Industrial Networks and the Cybersecurity Policy & Research Institute at the University of California-Irvine.
Cybersecurity is one of the hottest sectors in technology as high-profile breaches and hackings continue to plague corporations and governments around the world. The most recent momentous breach, at Atlanta-based credit score and report services provider Equifax Inc., compromised names, social security numbers and home addresses of 143 million Americans.
Menlo Park-based Cybersecurity Ventures predicts companies and consumers will spend $1 trillion globally over the next five years on cybersecurity, a market projected to grow 12% to 15% annually.
SecureAuth last year established a national consortium of private and public entities seeking to solve the growing problem of data breaches.
The Connected Security Alliance aims to protect organizations and reduce detection time of breaches through an aligned group of security providers that will share best practices, actionable intelligence and adaptive authentication techniques.
“There’s always room for innovation,” Kukowski said.
