Norman Unit Readies IPO, New Products

BR>

Norman Unit Readies IPO, New Products

Staff Writer

Norman Data Defense Systems Inc., Fairfax, Va., wants to join the public market in the next six months. It's one of dozens of local high-tech companies eyeing initial public offerings.

When Norman Data Defense Systems AS, Lysaker, Norway, established a U.S. subsidiary in June 1993, company executives thought the software unit would take off. But instead, sales of the company's flagship anti-virus software product were flat.

The U.S. subsidiary reported $1.1 million in revenues for 1996, a slight increase over the $900,000 figure for 1995. With sales on the upswing and new remote access and risk analysis products being readied for rollout in the second quarter, management is bullish on the company's long-term outlook.

Last month, the company hired investment bankers Merrill Lynch and Hambrecht & Quist, San Francisco, to explore the option of going public. The company plans to use the proceeds from the offering to develop more new products and to pursue other growth strategies, said George Dreyer, president and chief executive of the U.S. subsidiary.

Dreyer, who has set a target of doubling company revenues in 1997, wants to see the company on the Nasdaq Stock Market by June. In the long term, Dreyer's goal is to position his company as one of the top three information security providers in the United States. According to analysts, the company is a smaller player in the U.S. market.

"The information security business is very fragmented with a lot of players. There are no Microsofts in this market," said Dreyer. "There will be a lot of consolidation over time."

Dreyer said his company does not expect to make any acquisitions and does not consider itself a takeover target.

The parent company's overall revenues were $16 million in 1996 and $6.5 million in 1995. Started in 1984, the company has evolved into the fourth largest anti-virus software provider in the world, Dreyer said.

In July 1996, the parent recruited Dreyer to build a stronger presence in the U.S. market and boost revenues 100 percent in 1997. Before joining NDDS, Dreyer was the chief executive of Oracle's Complex Systems group and a business development executive with Sylvest Management Systems in Lanham, Md.

When Dreyer came to NDDS, the U.S. subsidiary's revenues were sluggish because the entire company began to redirect and expand its product line. The company, which traditionally provided virus control and backup software, is now offering firewalls, access control and data recovery software products.

The U.S. subsidiary, which currently has 20 employees, is responsible for sales and marketing of NDDS' products to U.S. customers. The company also established a manufacturing facility in Hanover, Md., to develop new software products.

Carl Howe, a senior analyst with Forrester Research in Cambridge, Mass., said the company's new offerings are indicative of a trend in the security software market to provide a wider range of network security options.

"The last two years have been the time for firewalls. Now the industry is moving into a second generation of products," said Howe. "Customers are more aware of the importance of comprehensive security programs."

Companies such as NDDS are being forced to provide products that secure networks internally rather than focus solely on security from the outside, Howe said.

Dreyer is also focusing on changing his company's commercial and government business mix. He plans to increase the current ratio of 60 percent commercial business to 80 percent, and to decrease the government share from 40 percent to 20 percent during the next few years.> Dreyer said the word "defense" in the company's name leads people to think NDDS is primarily a defense contractor. Management is now considering dropping the word from the U.S. subsidiary's name, said Dreyer.> "Any Washington company with the word defense in its name is automatically labeled as a government contractor," said Dreyer. "'Data Defense' works in Europe but not here."> The U.S. unit's government work includes a $5 million Department of Energy contract won in August 1995 for viral protect-ion software. The agency purchased 2,501 workstations and 51 file servers.

In June 1995, the company was awarded an anti-virus software contract by the U.S. Defense Information Systems Agency, which runs through September 1997.

Among the company's competitors are McAffee Associates Inc. of Santa Clara, Calif., and Raptor Systems of Waltham, Mass. Another potential competitor is Axent Technologies Inc. in Rockville, Md., which sells several information security software products.

The coming year is a critical one for NDDS and other smaller software security firms trying to get a foothold in the financial services market, according to Michael French, vice president of market research for Insight Research Corp., Livingston, N.J. This is because banks and brokerage firms are beginning to form consortiums that will create standards for network security products so financial institutions can do business with one another.

"Security software is a key area to be in, but at the same time there is a small window of opportunity," said French. "Once standards are established, they will not change."

Companies will be forced to muscle their way into these consortiums or they must demonstrate some leadership on the creation of these standards, said French.

"We don't know who will be the leaders yet," said French. "[NDDS] has a good technology, but there is still some risk involved with moving into a new market."