MessageLabs Seeks Buyer

Rumor has it that MessageLabs is looking for a buyer, and has engaged UBS as investment banker. We believe the rumor to be correct.

All in all, it's probably a good time for MessageLabs stockholders to sell:

• Generally, plenty of M&A interest in the malware field -- think of the recent acquisition of BlackSpider by SurfControl, and of CipherTrust by Secure Computing; and less recently, of FrontBridge by Microsoft.
• MessageLabs is a leading hosted provider, with good technology and people.
• So valuations should be good.
• MessageLabs management has many strengths, but it's not been as good at generating profits as shareholders have wished. Merging with another firm facilitates the generation of wealth.

The prospectus asserts:

• 61% CAGR since FY02, resulting in an estimated ₤50 million ($92 million) in FY06, with positive growth outlook.
• EBITDA margin of 15% and net income positive in FY06, projected to increase ahead of growth in sales.

One caution: It is easy to mistake the financials of the parent, MessageLabs Group, with those of the MessageLabs business. That may make MessageLabs' P&L look rosier. Nothing, however, that due diligence won't clarify. ... David Ferris