SafeNet’s reckon the merger will accelerate its growth as a network security software and services provider to government and financial institutions.

It believes the addition of cryptography and data security specialist Rainbow to its portfolio will add about $70 million in government business. It also says the merger will propel it further into the consumer security market, with Rainbow’s anti-piracy software being used to target the digital rights management space.

The terms of the deal sees SafeNet issuing 11.1 million shares of common stock – 0.374 of a share for each outstanding Rainbow share. Based on SafeNet’s closing price of $41.02 on October 22, that values the deal at $457 million.

The deal brings together a variety of security technologies, and is the third acquisition SafeNet has made this year. The virtual private networking specialist added the content inspection co-processor chip maker Raqia Networks Inc to its roster in March 2003 for about $7.2 million in stock and cash, and earlier this month acquired the VPN toolkit OEM business of SSH Communications Security Ltd [SSH1V.BE] for $14 million cash.

SafeNet also acquired VPN rival Cylink Corp for about $35.4 million worth of shares in late 2002, while Rainbow in August added PKI and SSL-based web application-based hardware specialist Chrysalis-ITS Inc to its anti-piracy and cryptography line in August 2003.

The result of those acquisitions mean that the current deal sees the merger of two growing businesses, as indicated by the third-quarter results for both companies, which were also released on Wednesday.

For the third quarter ending September 30, SafeNet recorded net income of $2.3 million on revenue up 99% to $17.6 million, compared with net income of $877,000 on revenue of $8.8 million in the same quarter last year. Meanwhile, Rainbow recorded net income of $2.7 million on revenue up 17% at $35.4 million, compared to net income of $1.8 million on revenue of $30.3 million in the third quarter of 2002.

This article was based on material originally published by ComputerWire.