Cloud security solution provider Qualys has signed a non-binding letter of intent to acquire Second Front Systems -- a channel partner and IT consulting firm in the federal government sector. Although the move could help Qualys to better serve government agencies, it also risks creating channel conflicts that may alienate some partners, MSSP Alert believes.
This is not a done deal. Many letters of intent are never publicly announced because actual M&A deals never materialize. In this case, the parties will "need to negotiate and enter into definitive agreements before proceeding with the proposed acquisition," Qualys says.
If a deal is reached and regulators approve the combination, Qualys expects to own Second Front Systems sometime in Q3 or Q4 of this year. In that scenario, Second Front Systems would be an independent subsidiary within the Qualys federal division, the company says.
In a prepared statement, Qualys CEO Philippe Courtot said:
“This acquisition would enable us to strengthen our federal division and expand the reach of the Qualys Gov Platform to various government sectors including military and defense. Second Front Systems provides comprehensive advisory services and cybersecurity solutions to government agencies addressing specific and pressing national security needs, to include those dealing with classified information. The Second Front team has significant expertise helping federal agencies build state-of the-art cybersecurity solutions as they embark on their digitization efforts. We hope to welcome the entire team to our federal division.”
Qualys is set to host an event to launch the Qualys Gov Platform on June 6 in Washington D.C.
Qualys Channel Strategy: Potential Conflicts?
The pending deal also has some potential downside risks -- especially in the IT channel. Time and again, some technology companies have acquired IT consulting businesses -- and were somehow surprised when selected channel partners felt alienated and took their business elsewhere.
Within the IT security sector, the key example involves FireEye acquiring cyber forensics company Mandiant for about $1 billion in 2014. The move triggered an uproar within the halls of some FireEye partner organizations, and FireEye is still trying to regain trust and credibility in the IT channel.
For its part, Qualys is no stranger to the channel. For instance:
- Qualys partners with every major global MSSP, Courtot has previously indicated.
- For the three months ended March 31, channel partners generated roughly 40 percent of Qualys sales, according to an SEC filing.
- During a recent earnings call, the company pointed to EY and PwC as key partners.
Qualys Perspectives on Partnerships
In an SEC filing, Qualys clearly pointed out that channel relationships are key to the company's growth. Risk factors, the company noted, include partners choosing to align with a different vendor -- especially since many Qualys channel partners have more established relationships with the company's competitors.
Amid that reality, Qualys is now negotiating to buy a channel partner -- albeit, a partner that only focuses on government deals rather than broad, horizontal engagements. We've reached out to Qualys for comment about the company's channel strategy amid the Second Front Systems negotiations. We'll update this article as additional information becomes available.