Antivirus company Symantec (NASDAQ:SYMC), best known for its Norton antiviral software, announced on Sunday that it would be purchasing identity protection company Lifelock Inc (NYSE:LOCK) for $2.3 billion. Symantec will pay with cash and $750 million in new debt.
In a press release, Symantec CEO Greg Clark called LifeLock “a leading provider of identity and fraud protection services” and said that “with the combination of Norton and LifeLock, we will be able to deliver comprehensive cyber defense for consumers.” However, Symantec has stated that the acquisition, which will probably close in the 2017 1Q, will not have a significant impact on its financial numbers until 2018.
Symantec will pay a premium of $24 per share for LifeLock compared to the Monday morning opening price of $20.75. The company had to make a move in response to declining anti-virus computer sales, and is betting that idea focusing on identity protection and mobile over desktops is the way to go.
There are concerns about whether merging with LifeLock in particular is a good idea, given that it has been hit with fines by the FTC for false advertising failing to protect consumers. But while there are concerns about how well Symantec and LifeLock will work to protect consumers on a technological level, the idea behind the merger remains sound and investors should look to buy.
Fighting Cybercriminals
Symantec’s stock has risen over the past year, bolstered by surpassing earning reports in the last quarter. But despite these good financial numbers, Symantec and other cybersecurity firms are dealing with serious problems fighting cyber criminals.
Symantec itself noted in a recent report that over 50 million Europeans were attacked by cyber criminals in the past year, whether in the form of explicit ransomware or malicious e-mail links. But despite the major publicity coming from incident like the recent Democratic Party hackings, ordinary citizens are incredibly complacent about this potential threat.
One reason for this complacency is because citizens are switching away from laptops and desktops and more towards mobile devices. For some reason, many individuals are unwilling to install even basic protections that they would on their computer, seemingly confident that they will never get attacked.
These trends are problematic for Symantec. Symantec’s Norton anti-virus is often bundled with computers, and declining computer usage is bad for Norton and by extension Symantec. Furthermore, hackers these days are more interested in stealing information which can be used to fake your identity.
These factors mean that the idea of buying a mobile software company which focuses on protecting your tablets and computers, like LifeLock is sound. Symantec can bundle LifeLock and Norton together and then sell the two as a protection package. This would bolster Symantec’s customer sales number, revenue, and allow it to adapt to a changing market.
LifeLock: Image vs Reality
Symantec is betting on the LifeLock acquisition as a means to get into the mobile protection market. But the big elephant in the room is that while LifeLock may talk a lot about its commitment towards customer identity protection, its actual results are much more mixed.
As noted above, LifeLock recently was forced to settle with the FTC and pay the government $100 million in December 2015. While this would be problematic under normal circumstances, this is made even worse by the fact that LifeLock “violated the terms of a 2010 federal court order that requires the company to secure consumers’ personal information and prohibits the company from deceptive advertising.”
For example, former LifeLock CEO and current executive vice chairman Todd Davis would often post his own social security number in advertisements and bragged that LifeLock’s security software was so good that they would not be able to use his identity even with that information.
But in fact, Davis’s identity was compromised over a dozen times.
It is possible that these concerns are in the past. Furthermore, Lifelock’s revenue and membership has continued to grow and it managed to meet Wall Street expectations in its most recent earnings report despite the aforementioned controversies. The fact that it can do so is a sign of the high demand for mobile anti-identity theft software, something which it will be more capable of as part of Symantec.
A Sensible Merger
Despite LifeLock’s past struggles, the fact is that they are a major player in the mobile identity protection market. This is Symantec’s weak point, which should be able to use its larger consumer base to further the appeal of LifeLock and persuade others of the importance of protecting their phones.
Symantec has been doing well as a stock over the past 12 months even as it was held back by declining anti-viral sales. Acquiring LifeLock will help assuage that problem and this is a good time for investors to jump on the stock as so many have done on Monday. Whatever the technological concerns, it is rare to see a merger which fits so hand in glove.