Market Insight

Inside Secure acquires Verimatrix

January 02, 2019  | Subscribers Only

Merrick Kingston Merrick Kingston Associate Director, Research & Analysis, Digital Media & Video Technology

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Inside Secure, a mobile, banking, IoT, and SoC security specialist, will acquire video and media security specialist Verimatrix. The all-cash transaction – valued at $143 million and backed by One Equity Partners - is expected to close in Q1 2019.

Our analysis

This deal is not born of present financial need or struggle. Inside Secure and Verimatrix continue to exhibit healthy growth, and remain strongly positioned in their respective markets. We believe that Verimatrix’s business grew by 3% YoY in 2017, while Inside Secure’s business grew by 9% over the same period.

Rather than reflecting a desire to capture new revenues or cash-flow inorganically, this acquisition aims to enlarge the firms’ total addressable market, and allow the combined entity to target new clients with a wider portfolio of products.  

With minimal exception, the two companies’ technology portfolios are highly complementary. In the media space, Inside Secure has an established embedded HDCP, security and watermark-hardening, TEE, root-of-trust implementation, and multi-DRM management business. Verimatrix's positioning revolves around traditional content encryption and rights-enforcement solutions, anti-piracy services, and watermark-insertion solutions. The acquisition will allow the combined entity to offer a wide complement of hardware-and-software-based security solutions, and anti-piracy services.

The firms’ industry and client positioning are equally complementary. Inside Secure operates in the IoT, automotive, mobile banking, and app security segments, and within the media space, engages primarily with OEMs and device manufacturers. While Verimatrix’s positioning revolves exclusively around the media ecosystem, Verimatrix will provide the combined entity with an opportunity to sell to content owners, service providers, channel networks, aggregators, and digital new-entrants.

New opportunities aside however, the deal raises questions about whether pureplay video technology vendors – whose portfolios center on a single product area – can secure successful, long-term market presence.

Verimatrix’s strategy over the past 24 months is instructive, and suggests that achieving long term, single-product-area positioning is challenging for pureplay vendors.  In response to a conditional access (CA) market that is contracting, and a pay TV market whose technology spend faces intense scrutiny, Verimatrix has embraced diversification. By acquiring MiriMON and Akamai Identity Services, the company itself has established a cloud-based analytics business, moved into the backend content-workflow space, and dipped its toes into the B2B contribution segment, where content owners and content aggregators exchange content, rights, and policies.

From this perspective, the Inside Secure deal represents another page torn directly from the diversification playbook. Indeed, the video technology industry as a whole appears to be burning the candle from both ends: pursuing divestiture to avoid the risk of over-extension and R&D dilution; pursuing acquisition to avoid the commoditization risk that threatens pureplay, single-area portfolios.

Over the past year alone, Cisco, Ericsson, Nokia, and Nagra have re-structured, divested, and re-thought their core video strategies. In this context, the Verimatrix deal provides more evidentiary material that creating value in the video technology segment is, and will likely remain, incredibly challenging.

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