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How Uncle Sam's Helping Tech Firms Win Security Deals

July 23, 2013

Thanks, Uncle Sam: How Cisco, HP Benefit from U.S. Scrutiny

U.S. Treasury Secretary Lew speaks with China's President Xi Jinping during their meeting at the Great Hall of the People in Beijing on March 19, 2013. The Committee on Foreign Investment in the United States (CFIUS) is an inter-agency committee, including the Dept. of Treasury. Source: U.S. Department of the Treasury

Talk about home field advantage. As Cisco Systems' $2.7 billion acquisition of Maryland-based Sourcefire shows, it pays to be located on American soil, especially when it comes to buying a U.S. security company.

The deal with Sourcefire, which got 19 percent of its $223 million in revenue last year from sales to the U.S. government, is emblematic of the tight control the feds exert over their closest suppliers of anti-hacking technologies.

With the acquisition, Cisco will join companies including Hewlett-Packard that have directly benefited from the government's tightfisted approach to deals involving foreign companies and U.S. network-security products.

In 2005, Sourcefire was going to be sold to Check Point Software, an Israeli maker of Internet firewalls, for $225 million. Then the Committee on Foreign Investment in the United States, or CFIUS, an arm of the Treasury Department, stepped in to review how the deal would transfer sensitive technologies to a foreign company. Check Point withdrew its offer, citing the agency's scrutiny as a reason.

CFIUS also intervened in the proposed sale of 3Com, a U.S. maker of networking equipment, to Huawei Technologies, a Chinese company founded in 1988 by former army officer Ren Zhengfei. Huawei and Bain Capital Partners dropped a bid to buy 3Com in 2008 after U.S. officials opposed the transaction. 3Com's businesses include a security division called TippingPoint, which pays hackers for information about previously unknown software vulnerabilities.

The beneficiary of that move wound up being Palo Alto, California-based Hewlett-Packard, which completed its acquisition of 3Com in 2010.

San Jose, California-based Cisco said it doesn't foresee any obstacles to its acquisition of Sourcefire. As a U.S. firm buying another U.S. firm, the deal won't be subjected to scrutiny by CFIUS. The deal is expected to close in the second half of this year.

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