In an unusual deal between privately-held firms, network security company Arbor Networks on Thursday said it plans to acquire Ellacoya Networks, a network traffic inspection firm, for an undisclosed sum.
The deal, which has been rumored for about a year, was triggered by a larger market consolidation occurring in the telecommunications industry, according to David Vorhaus, research associate at Yankee Group.
Carriers have been growing larger through acquisition, and gear suppliers such as Arbor and Ellacoya have been following suit in an effort to stay competitive in a market where carriers are looking for multifaceted products.
"The two companies have complementary technologies so I think Arbor bought themselves a firm that fits nicely with current market trends," Mr. Vorhaus said.
Two weeks ago Allot Communications, a firm based in Hod-Hasharon, Israel, which makes network traffic inspection products like Ellacoya's, acquired Esphion Ltd., a network security firm much smaller than, but akin to Arbor.
And seven months ago Sandvine, another Ellacoya rival based in Waterloo, Canada, acquired Simplicita Software, a security firm. So integrating security and traffic management has emerged as a trend that seems to be taking hold.
"We would look at the requests for proposals that came in and they always had something to do with security so we knew that security was the thing we lacked,"said Gerald Wesel, CEO of Ellacoya.
Merrimack, New Hampshire-based Ellacoya markets a sometimes-controversial technology called deep packet inspection that allows carriers to examine intimate details of data packets on the fly for performance purposes mainly and also for security.
Demand for the technology soared among carriers and ISPs in North America in the wake of the 9/11 terrorist attacks and the U.S. government's heightened surveillance response.
Together, Ellacoya and Lexington, Massachusetts-based Arbor generate about $70 million in revenue, and one analyst estimated that Arbor will pay between $125 and $150 million for Ellacoya.
The companies plan to begin knocking on the doors of each other's customers at the completion of the deal.
"We believe the opportunity of cross-selling our products plus meeting our customers' needs from an integration point of view will create great upside," said Jack Boyle, Arbor's CEO.