Symantec has agreed to acquire closely held online messaging and web security firm MessageLabs in a cash deal worth about $695 million, the companies said Wednesday.

The acquisition adds muscle to Symantec’s position in the growing software-as-a-service arena, said Daniel Ives, an anlyst at Friedman, Billings, Ramsey & Co.

“Symantec should be able to leverage MessageLabs' roughly 20,000
clients in a number of cross-selling opportunities over the coming years, giving further legs to Symantec's enterprise security/storage strategy,” he said in a research note. At the same time, he added that the deal “could add some more risk in a very uncertain IT spending environment.”

Mr. Ives cut his price target for Symantec from $23 to $18 “to reflect a more realistic multiple in light of a darkening macro backdrop.” Still, shares of Symantec, which competes against McAfee, Microsoft and other security software providers, rose $.27, or 1.8 percent, to $15.27.

In a conference call, John Thompson, Symantec chairman and chief executive, said that researcher IDC forecasts that the market for messaging security is expanding at a compound annual growth rate of 15 percent.

“Together, Symantec and MessageLabs will have more than 2 times the market share of our nearest competitor,” Mr. Thompson said. “In addition, MessageLabs is the leader in the largest and fastest growing segment of the messaging market - hosted services, with 30 percent market share and a CAGR of 32 percent, according to IDC.”

Symantec expects the deal to cut $.02 from its fiscal 2009 results and close by the end of this year. The deal will be paid in 310 million British pounds sterling and $154 million U.S. dollars.

MessageLabs, based in Gloucester, UK, is backed by Catalyst Investors and Prospect Investment Management.

In the June quarter, Symantec posted a year-over-year 16 percent increase in revenue to $1.7 billion. Net income increased 30 percent to $341.8 million. MessageLabs generated revenue of $145 million in the fiscal year ended July.

After the acquisition, Symantec, based in Cupertino, California, plans to create a new software-as-a-service product group.