39/41 Parkgate Street
Company Perspectives:
Our aim is to be the leader in e-security. We will continue to broaden our product and service portfolio by a combination of organic and acquisitive growth, and will continue to deliver leading edge e-security solutions to our customers to enable the adoption of e-business on a global basis. We enter 2001 with confidence, and the Board remains committed to its programme of investment, a strategy which it believes will provide the platform for long-term growth and profitability for Baltimore Technologies.
Baltimore Technologies Plc is one of the world's leading "e-security" companies and has built up a strong portfolio of primarily software-based security systems protecting data transmission, communication, access, and financial and other transactions over intranets and the Internet. With operations headquarters in Ireland (and financial headquarters in Reading, England), Baltimore Technologies has grown quickly from its original focus on public key infrastructure (PKI) applications to include content security (Baltimore MIMEsweeper); third-party server hosting facilities; access management and access authorization (Baltimore SelectAccess); and wireless transmissions security (Baltimore Telepathy). Nearly all of the company's product range has been added through a series of acquisitions made in 2000 and 2001, including the purchases of CyberTrust Solutions Inc., formerly of GTE; Content Technologies; more than 72 percent of NSJ Corporation, renamed as Baltimore Technologies Japan; Nevex Software Technologies, based in Toronto; and others. The company's revenues have skyrocketed from less than £10 million in 1998 to more than £74 million in 2000. With the market for e-security solutions expected to be worth more than $21 billion by 2005, Baltimore Technologies is well placed, with the leadership position in North America and Europe and the number two position in Japan. Yet the company, battered by the plunge in technology stocks in the year 2000, remained a candidate for takeover, a possibility brought still closer with the July 2001 resignation of CEO Francis ("Fran") J. Rooney. The company trades on the London and NASDAQ stock exchanges.
E-Security Pioneer in the 1990s
Baltimore Technologies resulted from a reverse takeover by Zergo Holdings made in 1999. Zergo had been founded by Henry Beker in 1988 and had developed itself as one of England's leading data security consulting firms. The company went public in 1995, listing its shares on the London Stock Exchange's tech stock AIM board before transferring to the main index. Zergo's original concentration had been on developing and implementing third-party hardware and software systems, and in providing consulting and servicing for customers' systems.
By the mid-1990s, Zergo had shifted into software development, targeting especially the market for anti-hacking and anti-piracy software. The company introduced its well-received Firewall system of credit-card encryption software at the end of 1995. By then, the company was posting £4 million in sales. The company's primary customer base was among government offices and banks.
In 1998, Zergo strengthened its software development activity with the acquisition of Security Domain, based in Australia, which not only afforded the company access to the Asian-Pacific region, but also gave Zergo its first range of software. This rapidly became the company's focus, and in 1999, Zergo began looking for a new acquisition with which to develop this potentially huge market.
By then, the world had seen the coinage of new terms such as "e-commerce" and "e-security" as the Internet and Internet-based financial and commercial transactions were set to become commonplace. A number of primary concerns governed the expansion of these sectors, however. Among these were concerns about security especially, not only for the transmission of financial data, but also the protection of privacy, the control of access and authorization, the setting up of firewalls, and so on. One of the technologies then being developed was application of so-called public key infrastructure, or PKI, which offered a means of authenticating senders and receivers of data and other transmissions, in order to ensure security.
Baltimore Technologies, based in Dublin, Ireland, had quickly set itself up as one of the leaders of PKI software implementation. That company, too, had originally been formed as a technology consulting firm, in 1976. In 1996, however, the privately owned company came to the attention of Fran Rooney and Dermot Desmond. A former professional soccer player-turned accountant, Rooney had held various positions with the Irish government before joining the National Irish Bank. In the early 1990s, Rooney worked for payments processing company Meridian International, serving as managing director until 1994. At that time, Rooney joined financier Dermot Desmond at Quay Financial Software, serving as corporate manager and successfully restructuring the troubled company. In 1996, Rooney saw the opportunity represented by security systems for the rapidly growing Internet-based transmissions sector. Backed by Desmond and joined by other investors, Rooney acquired Baltimore Technologies for £500,000. Desmond's share of the company neared 60 percent.
Rooney, named CEO, promptly refocused Baltimore to the market for PKI software systems. Starting with a staff of just six, the company became one of the symbols for the sudden late 1990s high-technology boom. The company opened offices in a number of countries; it also entered Japan in 1997, with a distribution agreement with that country's NSJ Corp. In this Baltimore Technologies was aided by a worldwide marketing coup in 1998, when U.S. President Bill Clinton and Irish Prime Minister Bertie Ahern used Baltimore's system to place digital signatures to an agreement between the two leaders. The digital signing made e-security history—and established the Baltimore Technologies brand name worldwide.
The company, which had posted less than £2 million in sales in 1997, was now attracting customers worldwide, and signed a number of new contracts with such major organizations as Deutsche Bank, the British Post Office, and the Irish government. Baltimore's growing success also attracted the attention of Henry Beker and Zergo Holdings. In December 1998, Baltimore agreed to be acquired by Zergo Holdings, with Desmond selling out most of his stake in the company. Rooney and Beker shared responsibility for the company's direction, with Rooney taking the COO spot, while the company itself took on the stronger Baltimore Technologies brand name. The merger created one of Europe's leading PKI-focused e-security companies; yet Baltimore remained a minor player in the North American market dominated by such companies as Entrust and Verisign.
Gorilla in the 21st Century E-Security Market
The takeover quickly turned out to be a reverse takeover, as disagreements between Rooney and Beker soon led to the latter's resignation. Rooney was named to the CEO spot in Beker's stead. Baltimore now began an aggressive expansion, boosting its number of sales and service offices to more than 20 worldwide. The company was boosted in July 1999 when it announced that it had been awarded the security systems contract for banking consortium Identrus, whose members included such banking heavyweights as ABN AMRO, Citigroup, Deutsche Bank, Chase Manhattan, Barclay's, and Bank of America.
Soon after, the company raised a war chest with a new listing on the prestigious NASDAQ, raising some $170 million. Baltimore Technologies then hit the acquisition highway. As Rooney told Reuters: "We want to be the gorilla in the marketplace. We're going to need a several billion dollar company with a thousand plus employees or more. What we want to do is position ourselves so that we can grow into whatever infrastructure we need."
Baltimore Technologies soon revealed its ambition to build an across-the-board e-security business. In January 2000, the company acquired CyberTrust Solutions, formerly a subsidiary of GTE. CyberTrust, which held a 15 percent share of the North American encryption market, gave Baltimore Technologies a vigorous new entry into that market, boosting its share to 20 percent and a solid third-place position. The deal, worth some $150 million in stock, also catapulted Baltimore Technologies' stock into the big leagues—where it became a symbol of the high-flying tech stocks of the period. Indeed, at one point the company was valued at more than £4.5 billion ($7.5 billion)—at a time when its revenues barely surpassed £23 million, and it continued operating at a loss. The company's soaring stock price gave it a brief run in the London exchange's prestigious FTSE-100 index.
The CyberTrust acquisition was followed quickly by several more as Baltimore branched out beyond its PKI core to transform itself into a full-service e-security group. In March 2000, the company acquired 72.5 percent of the sales agency that had been handling its products in Japan, NSJ Corp., in a deal worth ¥2.67 billion (£20 million). The purchase made Baltimore Technologies the number two e-security company in Japan and gave it a strong position in other Asian markets as well. The company changed the name of its new subsidiary to Baltimore Technologies Japan.
In September 2000, Baltimore Technologies struck again, now acquiring Content Technologies, of the United Kingdom, in a deal worth more than £700 million in Baltimore stock. The acquisition of Content—which posted just £16 million in 1999—gave Baltimore that company's suite of MIMEsweeper software, extending its operations into such lucrative areas as antivirus protection and data and database protection. The new software was promptly renamed Baltimore MIMEsweeper.
Baltimore Technologies' next big move came in October 2000 when it announced that it had acquired Toronto, Canada's Nevex Software Technologies, a developer of Internet-based secure access and authorization management software. That company had been founded only in 1999, by the same group of developers who had been behind the launch of one of the earliest firewall systems, produced by Border Network Technologies. The deal, for £29 million in stock, helped complete Baltimore Technologies' e-security software offerings in its core IT and corporate servers market. More importantly, it helped Baltimore Technologies capture the leading e-security spot in the United States.
Baltimore Technologies paused to catch its breath at the beginning of 2001. The collapse of the high-tech stock boom, starting in March 2000, had decimated the company's share price. By April 2001, the company was valued at just £400 million. Rooney, who had been vaunted as one of the great success stories of the "new" economy, now found himself under pressure. The company also was forced to issue profit warnings, as its losses for the first quarter of the year topped £100 million, compared with just £10 million in the year before. The company attempted to slow its mounting losses with the announcement of a restructuring resulting in the elimination of some 250 jobs in May of that year. Meantime, the slump in the Internet-based economy continued to cut into Baltimore Technologies' order books.
By July 2001, the company found itself denying persistent rumors that it had become the target for takeovers or that it was putting itself up for sale. At that time, Rooney resigned from his position as CEO. A temporary CEO, Paul Sanders, was installed while the company continued to shop for a new leader. Yet many in the industry forecast that Baltimore Technologies now presented a strong potential for acquisition—possibly by a giant company, such as Microsoft, desiring to take control of the company's strong e-security portfolio. Baltimore Technologies refused to close out any options. As Sanders told the Guardian: "We haven't had any formal approaches but, given our profile as a plc and our product, I'm sure people will be interested." Among those known to be interested was Chantilley Corporation Ltd., of the United Kingdom, which already had made two overtures to the beleaguered Irish company—most likely as an easy means to gain its own public listing.
Principal Subsidiaries: Baltimore Technologies Limited; Baltimore Technologies (U.K.) Limited; Baltimore Technologies Holdings Limited (U.K.); Data Innovation Benelux BV (Netherlands); Baltimore Technologies BV (Netherlands); Baltimore Technologies Pty Limited (Australia); Certificates Australia Pty Limited (Australia); Baltimore Technologies Inc. (U.S.A.); Baltimore Technologies KK (Japan); Baltimore Limited (Hong Kong); Baltimore Technologies AB (Sweden); Baltimore Technologies EURL (France); Content Technologies Holdings Limited (U.K.); Content Technologies Limited (U.K.); Content Technologies SAS (France); Content Technologies GmbH (Germany); Baltimore Technologies Japan KK; Content Technologies KK (Japan); Baltimore Technologies PTE (Singapore); Content Technologies (Asia/Pacific) Pty; Limited (Australia); Baltimore Technologies Inc. (Canada); CyberTrust Solutions Inc. (U.S.A.); Content Technologies Inc. (U.S.A.).
Principal Competitors: Certicom Corp.; Crypto AG; enCommerce; Entrust Inc.; International Business Machines Corporation; iD2; IAIK; nCipher; Network Associates, Inc.; Phaos; RSA Data Security, Inc.; Sonera SmartTrust; Sun Microsystems, Inc.; Symantec Inc.; Verisign, Inc.
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