Zix Buys Anti-Spam Software VendorZix Buys Anti-Spam Software Vendor

As E-mail security becomes a growing concern for companies on multiple fronts, vendors are looking to address issues such as spam, viruses, confidentiality, and regulatory compliance. Zix Corp. took the acquisition route Tuesday, picking up Elron Software, the U.S.-based anti-spam subsidiary of Israeli holding company Elron Electronic Industries Inc., for about $7.6 million in stock and convertible notes.

The acquisition, which has already been completed, gives ZixCorp its most significant foothold yet in the anti-spam arena. The company, which specializes in providing services for securing outgoing E-mails, had been offering basic spam filtering on the network-services level, but has found that customers want an on-premise filter that also can restrict employee Web surfing by blocking URLs and filtering content, CEO John Ryan says.

In recent months, ZixCorp has had a string of customer wins in the health-care industry, which Ryan acknowledges is its strongest vertical market. He estimates that no more than 20% of all health-care companies have anti-spam protection in place, representing an opportunity for a company that already provides E-mail security to customers looking to comply with the Health Insurance Portability and Accountability Act by protecting sensitive patient data transmitted via E-mail. But Ryan expects the acquired Elron anti-spam technology to prove attractive in multiple markets. "I think their offering is as good as anyone's," he says. "What they were missing was a good direct-sales force."

ZixCorp is bringing over just about all of Elron's employees, 37 in all, and expects to report an additional $1.5 million in revenue during each of the next few quarters, thanks to the acquisition. It inherits some 4,600 Elron customers, including Anheuser-Busch, Eli Lilly, and 20th Century Fox. ZixCorp issued about $6.6 million worth of its stock, based on Tuesday's closing price of $3.84, plus a 5.75% convertible note for $1 million that will be due in 12 monthly installments beginning in September 2004. As of the close of markets Tuesday, ZixCorp's stock was up more than 5% on news of the acquisition. Elron's stock was up more than 4% to $8.37.