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McAfee: Security Leader Driving Growth with Strategic Acquisitions

Explore the company overview, strategy, macro-economic outlook, industry analysis, competitors, valuation, client portfolio & recommendations of McAfee. Established in 1992, McAfee has evolved into a global security technology giant with a focus on security products and a robust acquisition strategy. The company dominates the market with its comprehensive security offerings and is strategically expanding globally. Competitors like IBM, Microsoft, and Symantec present challenges, but McAfee leverages alliances and efficiency to maintain profitability and market leadership.

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McAfee: Security Leader Driving Growth with Strategic Acquisitions

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  1. McAfeeSuyang “sean” hong, yanyanxu Presented on 11/10/2009

  2. Deliverable Outline Company Overview Company Strategy Macro-economic Outlook Industry Analysis Competitors Valuation Client Portfolio Recommendation

  3. Company Overview History Current Position

  4. History • 1992- Incorporated, under the ticker “MCAF” • 1997- Merged with Network associates, under the ticker “NETA” • 1999- McAfee.com initial public offering, under the ticker “MFE” • 2002- Company streamlined to security focus • 2004- First stage of reformation was completed 2004 is the turning point when company showed strong profitability in focused area.

  5. Current Position • Largest company dedicated to security technology • Employee: 5,600 • Newly added to S&P 500 • 35 billion asset and 1.6 billion revenue in 2008 • Global expansion to Europe, Asia, Latin-America • McAfee is the leader in the market

  6. Acquisition Strategy • Roll-up company that grows by acquisition • Focus on single market- security • Most recent acquisitions: • MX Logic $140 million • Solidcore Systems $33 million • Endeavor Security $3 million • McAfee is currently enjoying the benefit from its acquisitions

  7. Company Strategy Business Model Products

  8. Business Model • The 3-5-3 model describes products, geography and customer

  9. Products • System Security Offerings • PC protection • Network Security Offerings • Internet protection • Vulnerability and Risk Management Offerings • Company security protection • Comprehensive product mix that dominate the market

  10. Geography • Focus on North America and Europe market and explore the emerging market

  11. Industry Analysis Industry Overview Five-forces Analysis

  12. Industry overview • Adverse effects: • Economic downturn alters consumption • Limit to credit-impairs acquisition strategy • Foreign exchange exposure • Favorable effects: • Threat of terrorism stimulates the market • Stable growth in Internet access • Government recognition and procurement • Impact on adverse side is systematic while that on favorable is industry specific

  13. Five-forces Analysis • Suppliers play more strongly with less threat from substitution and buyers

  14. Strength and Weakness

  15. Opportunities and Threats

  16. Financial Position Income Analysis Leverage Efficiency

  17. Income Analysis • High gross margin, high SG&A cost/ Stable performance through out recent years

  18. Efficiency • Increasing utilization of assets

  19. Competitors Analysis Competitors Profile Comparable Analysis

  20. Competitors Profile • International Business Machine • Integration of IT consulting • Microsoft • Internet-PC market giant • Symantec Corporation • Pure-player competitor • Other medium-small size company • Converted to strategic alliance (SIA) • Successfully mitigate the challenge from giants and small competitors

  21. Competitors Profile • International Business Machine • Computer technology and IT consulting company • Market Cap: 165.51B • Employees: 398,000 • Microsoft • Computer and internet technology company • Market Cap: 257.41 • Employees: 93,000 • Big companies that have related sector or department in security industry

  22. Competitors Profile • Symantec Corporation • Security software company • Market Cap: 14.38 B • Employees: 17,500 • Leading position overtaken this year by McAfee

  23. Security Innovation Alliance • Security Innovation Alliance • Technology partnering program to accelerate product development • Different level of Alliance • Strategic Alliance • Downstream of the value chain • Most recent alliance: Lenovo, Verizon and Adobe • McAfee uses alliance to antagonize giants in the market

  24. Profitability • Medium performance in profitability and potential in cutting SG&A expense

  25. Liquidity • Low debt obligation reduces future risk

  26. Efficiency • High efficiency and utilization of assets

  27. Valuation Historical Highlights Management Assumptions WACC DCF Multiples

  28. Historical Highlights Huge turnaround since 2004: divested non-core business, focused on acquisition, and restructured

  29. Management • Forecasts about what they plan to see in 2009 with respect to the income statement • Give forecasts in “absolutes” • Clear explanation of what impacted each line of last three years of line items • Core strategy • Strong history of acquisitions and strong forecasts of future acquisitions and partnership deals • Roll up, fragmented industry Management clearly defines historical impacts and identifies key drivers for the future

  30. Assumptions • Costs grow at a slower rate due to business model, every additional sale of software or service above fixed cost lacks substantial variable cost and goes straight to the bottom line • Revenue • Increase customer base • Strengthening relationships with strategic partners • Increased revenue from upgrade initiatives • Increased revenue from network security solutions, higher hardware content means more upfront revenue realization • Cost (Absolute) • Grow from McAfee Consulting Services • Increased demand from subscription based products • Impact of acquisitions (Amortization)

  31. Assumptions Strong revenue growth, slow reduction of growth in COGS, increasing growth in R&D and amortization

  32. WACC • Operating leverage is high, financial leverage is low

  33. WACC - Bloomberg • Lower WACC explained by significantly lower beta (weekly, 2 year)

  34. DCF • Current price is around $42 Goal Post Bloomberg

  35. Multiples • Intrinsic value is around $36 to $45

  36. Client Portfolio Diversification Projected position in portfolio

  37. Diversification • Low correlation with current holdings

  38. Projected Position • If 300 Shares purchased, it would represent around 3% of the total portfolio value

  39. Recommendation • Pros • DCF shows fairly valued • Current price of $42 • Intrinsic value of $36 to $45 • Management’s new business model has turned the company around since 2004 • Current projections for the future are strong • Largest dedicated security • Cons • 39 PE Multiple • Market has high expectations • Will they meet and beat expectations? • One bad year can mean huge reduction in sales price • Add to Watchlist. If price pulls back, look to purchase 300 shares

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