On July 31, 2008, McAfee announced that it will buy Reconnex. The deal closed on August 14, 2008.

This report looks at the purchase and its implications. It is addressed at two constituencies:

• It helps CEOs and business development staff understand how to optimize stock price and design a successful equity sales strategy through understanding the experience of others. It also helps them develop the cost justification for investors.
• It helps investors determine whether the effect of the merger is constructive or not, from the investment standpoint.

Topics include:

• About McAfee, and how the acquisition benefits McAfee
• About Reconnex, and why it had to be sold
• Terms of the deal: price paid, price/revenue ratio, impact on common and preferred shares
• Key statistics about Reconnex that were relevant to the deal valuation, including current revenues and revenue history, profitability, funding history, how the negotiation with McAfee proceeded in McAfee’s favor, and investors
• Survey of comparable deals, including price paid
• Threats to the success of the acquisition

Much of the information presented here is not publicly available. Our off-the-record sources in reports such as these include stockholders, present and past company employees, and present and past board members.

Report 789. 2 pages.