SafeNet secures MediaSentry deal

Baltimore information-security services company SafeNet Inc. yesterday bought MediaSentry Inc., an anti-piracy services company for the music and movie industries, for $20 million in cash and stock.

SafeNet, which specializes in encryption technologies for the federal government and businesses, said the latest acquisition will expand its copyright security business.

"We have done anti-piracy services for large software companies, but we are seeing a bigger need for services in the entertainment industry," with consumers now able to download music files or movies to their laptops or cell phones, said company spokeswoman Maureen Kolb.

The acquisition of MediaSentry, a Morristown, N.J., company with 65 employees, is expected to slightly increase SafeNet's earnings per share by the end of the year.

SafeNet, which had 895 employees before the acquisition, picked up clients such as Warner Bros. and the Motion Picture Association of America from the deal, Mrs. Kolb said.

Shares of SafeNet on the Nasdaq Stock Market rose to $31.56 yesterday, up 51 cents from Friday's closing price of $31.05.

Deutsche Bank analyst Todd Raker said SafeNet's stock probably will not see much more upswing beyond his $34 price target.

"We believe multiple expansion beyond this is unlikely and that further stock appreciation will require earnings and cash flow out-performance," Mr. Raker said in his most recent report, which notes that Deutsche Bank is seeking business with the company.

Mr. Raker, who does not own any SafeNet shares, advised investors to hold their stock.

Erik Suppiger, a networking and security analyst with San Francisco investment bank Pacific Growth Equities LLC, noted SafeNet's recent acquisition is smaller compared with other businesses SafeNet has purchased.

SafeNet has acquired four companies in the past 15 months, including Rainbow Technologies Inc., an Irvine, Calif., information-security company it bought for $457 million in stock in March 2004.

"They have made a lot of acquisitions in the past, and we are taking a sidelines view while they work" to merge those subsidiaries into regular operations, said Mr. Suppiger.

Mr. Suppiger, who rated the company "neutral," does not own any SafeNet stock and Pacific Growth has no business with the company.

While the MediaSentry deal is "a bigger growth opportunity," Mr. Suppiger said SafeNet's main business will focus on the federal government, primarily the Defense Department.

About 60 percent of SafeNet's sales come from government agencies, Mrs. Kolb said.

In the first quarter ended March 31, SafeNet posted profits of $1.23 million (5 cents per diluted share) compared with a loss of $456,000 (3 cents) a year earlier. Diluted earnings include the value of convertible warrants and stock options.

Sales for the quarter more than doubled to $59.8 million from $24 million in the comparable 2004 period.