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Case Studies

Peter A. Sokoloff & Co. regularly analyzes transactions which occur within the industries covered. An archive of these case studies is kept online as a courtesy to our colleagues. To receive by e-mail new case studies as they are prepared, please e-mail [email protected] with your contact information.

Archives > Transaction Case Study #5

RSA Security to Acquire Cyota

Dear Colleague,

Today's case study looks at RSA Security Inc.’s December 5th announcement that it signed a definitive agreement to acquire Cyota, Inc. for $145 million in cash. The transaction is expected to close within 30 days.

RSA Security (NASDAQ: RSAS) is a developer of verification solutions for financial institutions. They have revenue of over $311 million.

Cyota, Inc., a privately held Israeli start-up company based in New York, is a developer of security solutions against identity theft. Operating at breakeven, revenues are $15 million for 2005 and projected revenues for 2006 are expected to be between $22 and $25 million. The company has about 140 employees.

Under the terms of the agreement, RSA Security will pay $136 million in cash for all the outstanding capital stock, $5.5 Million in cash to fund a three-year employee retention pool and at least $3.5 million for the assumption of all outstanding Cyota stock options. This would be in the range of 6x forward sales revenue. RSA Security anticipates this transaction will be accretive to earnings for the second half of 2006.

Cyota raised $30 million in four rounds since its inception in 1999. The founders and other employees along with six investment firms will share in the profits of nearly 5x their investment.

In addition to expanding RSA Security's authentication offerings, Cyota's technologies are expected to open up new market opportunities for RSA by adding anti-fraud and transaction protection services to the portfolio. These include: an anti-phishing service that provides 24x7 detection of phishing attacks, alerts to customers and fraudulent site shut-down; a transaction protection service that authenticates online credit card users and supports initiatives such as Verified by Visa(SM), MasterCard SecurCode® and JCB J/Secure®; Cyota's risk-analytics techniques to identify fraudulent activity in accounts; and Cyota's eFraudNetwork, a recognized leading cross-bank collaborative online fraud network.

"Our customers will benefit from enhanced flexibility, and consumers will also be able to enjoy – through their account providers – access to strong authentication and transaction protection solutions that fit their lifestyles and security needs," said Art Coviello, president and CEO of RSA Security.

"We are excited to join forces with RSA Security, a world leader in security," said Naftali Bennett, CEO and co-founder of Cyota. "I am confident that Cyota's people will continue to display the same kind of enthusiasm, rapid innovation and devoted customer service that has been our trademark in this industry."

We hope that you find this new feature from Sokoloff & Co. interesting, informative and useful. We welcome your comments and suggestions.

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