Yesterday Intel, the giant US chip maker, snapped up a 6.3 per cent stake in Zergo. The move came as Zergo unveiled the acquisition of its nearest rival, the Irish group Baltimore, for a mixture of cash and shares worth pounds 35m.
The deal creates the world's second-largest supplier of software that allows people to make carry out transactions on the Internet. This market is expected to explode in the next 18 months as electronic commerce takes off in both the United States and Europe.
"This makes us indisputably number one in Europe and Asia and number two in the US," said Henry Beker, Zergo chairman and chief executive. "It makes us a real contender for global leadership."
Zergo has traditionally concentrated on providing large security projects for banks and government departments. But Baltimore is one of two leading firms providing Public Key Infrastructure technology - the systems that allow people to trade securely on the Net.
Baltimore already counts large organisations such as the Irish government, the British Post Office and Deutsche Bank among its customers. The deal with Zergo will allow it to target the US market where Entrust, its main rival, has established a lead.
At the moment the market is still tiny. Baltimore's revenues were about pounds 1.6m last year, while Zergo yesterday reported a pre-tax loss of pounds 3.1m on turnover of pounds 7.7m in the six months to the end of October. However, the growth is explosive: Baltimore's sales are expected to treble this year.
"In order to conduct electronic business you need to create an element of trust," said Michael Wand, a software analyst at Paribas, the investment bank.
Zergo shares jumped 21.5p to 364p yesterday, valuing the company at pounds 66m. Given that Zergo is not expected to turn a profit for a while, that valuation may look pricey. But analysts argue that if it can maintain its lead as electronic commerce takes off, the shares will prove to be a bargain.Reuse content