Magal Chief Executive Seeks Cyber Security Acquisitions

Magal Security Systems Ltd., whose devices have helped guard Israel’s borders for 40 years, is expanding to defend virtual perimeters.

The Israeli company is looking for acquisitions in the cyber security market that can bring in annual revenue of $15 million to $50 million, and introducing a new security switch to prevent cyber attacks, Chief Executive Officer Eitan Livneh said in an interview.

Magal plans to begin marketing a CyberSeal switch that can both detect and block cyber attacks next April in Europe and North America, according to Livneh. Other products include a wireless detector to deflect hacking of mobile-phone calls. The company aims to double revenue in the next few years.

“The entrance into cyber is very, very promising,” Livneh said in an interview at Magal headquarters in Yehud, Israel. “If cyber develops as I think it could, it could bring in tens of millions of dollars within three to four years.”

Recent cyber attacks on Yahoo! Inc., Target Corp. and Adobe Systems Inc. have led to increased spending on enterprise data security, Bloomberg Industries said in a Feb. 6 report. Security software is expected to be one of the fastest-growing areas of spending with a 7.2 percent compound annual growth rate through 2017 as private and public sector companies invest in securing their data and intellectual property, BI analysts said in November.

Magal’s stock, which trades in the U.S., advanced as much as 6.2 percent to $4.13, the biggest intraday jump since Feb. 7, and traded at that price at 11:16 a.m. in New York. That extended the gain this year to 16 percent.

Shaking Clients

The company’s technology guards most of Israel’s borders and provides perimeter security for airports, harbors and plants around the world. A former navy officer, Livneh likes to bring the risks alive by hacking into video systems of potential clients during a business meeting, or taking over investors’ mobile phones. “For people, seeing is believing,” he said.

Because there is low global awareness of the vulnerability of security networks, educating customers about risks will be Magal’s “first problem,” according to Livneh.

Magal doesn’t know of any other company that has products protecting the security layer of a corporate network. Companies like Cisco Systems Inc. offer protection to the overall network, but not the specific security layer, Livneh said.

Aerospace Spinoff

Magal, whose technology was spun off from state-run defense contractor Israel Aerospace Industries, plans to focus on sectors where it already has a presence such as petrochemicals, chemicals, transportation and critical assets.

“We’re already there managing their security events, so what does it matter if someone is breaching a physical or a virtual fence,” Livneh said.

Magal’s new cyber products are the result of an Israeli acquisition made a year ago. The company hopes to use the about $35 million it has in cash to buy bigger and more established cyber companies to boost revenue, according to Livneh.

“We want to grow to about $150 million in the next three to four years,” said Livneh. “To do that we need to do what we are doing in cyber and also to make acquisitions.”

Magal revenue in 2012 was $78 million, down from $89 million the prior year.

Last month, Magal named a vice president of mergers and acquisitions to execute the takeovers. Video management, access control, offender tracking and core cyber are among possible takeover interests, according to Livneh. “We would like to focus on different elements of homeland security.” The company may consider other takeover targets in the security market if the right opportunity comes along, Livneh said.