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Why a Symantec-Veritas Separation in 2015 Might Be a Good Idea

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May. 22 2015, Published 3:37 p.m. ET

Veritas’s positive growth and bright prospects will likely attract a buyer soon

As we’ve already seen in Symantec’s 4Q15 earnings series, Symantec’s (SYMC) Information Management segment, or Veritas, was the only operating segment that recorded positive growth in fiscal 4Q15 and fisal 2015. Its subsegment, NetBackup appliances, reported double-digit growth for those same periods.

Symantec is a leader in the backup and recovery software market with 30% market share. The segment’s positive growth indicates that Symantec will be able to get a buyer soon and fetch a higher valuation for Veritas.

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Sale of Veritas will inject cash flows to build security portfolio

Veritas is expected to split off into a separate company by October 2015. The Dow Jones Newswires believes Veritas could fetch more than $8 billion, which would bring substantial cash flows into Symantec. The company can use these cash flows to strengthen its security portfolio, especially advanced threat protection (or ATP) technologies.

As the above chart shows, Veritas’s legal separation is due on January 2, 2016. This is bound to create interest among investors. Funds from the sale of Veritas will help Symantec strategically acquire niche companies to increase its addressable market for new security offerings.

In its 4Q15 earnings release, Symantec’s management stated that the ATP market is growing at the rate of 40% per year. Symantec identified key areas, including backup appliances and security businesses such as mobile, ATP, Managed Security Services, and Data Loss Prevention (or DLP). DLP, ATP data encryption, and secure connectivity are the key essentials of a corporate infrastructure.

Research firm Gartner expects total cybersecurity spending to grow by an additional 8.2% in 2015 to reach $76.9 billion. Because of its strong presence in the security market, Symantec is expected to benefit from the cyber-awareness trend.

According to a report from Synergy Research Group, Cisco’s (CSCO) share of the worldwide network security market was 30% in 3Q14. Cisco is followed by Check Point Software Technologies (CHKP), Symantec, Huawei, Juniper Networks (JNPR), and Palo Alto Networks (PANW). For more on this topic, please read Cisco’s Sourcefire Acquisition Means a Security Market Share Gain.

If you are bullish about Symantec, you can invest in the PowerShares QQQ Trust ETF (QQQ) to gain exposure to Symantec. QQQ invests about 0.32% of its holdings in Symantec.

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