It goes without saying that the tech-based intelligence, surveillance, and security systems sector is favored here, and with the aforementioned in mind Applied Signal Technology (NASDAQ: APSG) is worth a review.

In general, analysts expect strong demand for Applied's broadband communications equipment and its new Model 680 Raider product to continue.

While the tough economy is pressuring information technology (IT) spending, there are still some growth areas. An example is security. Basically, it is a must-have technology – for essentially any environment.

And, one of the beneficiaries in the space is Sourcefire, Inc. (NASDAQ: FIRE). The company leverages an open source model --- for intrusion protection -- that has gained lots of traction over the past few years. Just take a look at its Q4 results.

Total revenues increased 33% to $25.7 million (full-year revenues were up 35% to $75.7 million). Earnings came to $2.3 million, or 8 cents per share. This compares to $800,000 or 3 cents per share in the same period a year ago.

For companies like Symantec (NASDAQ: SYMC) and McAfee (NYSE: MFE), the antivirus software industry is quite lucrative – and still growing quite nicely. So, it should be no surprise that competitors want a piece of the action.

One of the latest entrants: Haute Secure. Basically, the company has a plugin that blocks dangerous websites (which may have malware, phishing and so on).

More importantly, the service is free. Although, there are some exceptions (there is a paid service for business customers).

I had a chance to interview Nick Selby, who is the director of research operations of the enterprise security practice at The 451 Group. According to him:

"As drive-by downloads and malicious code appears on increasing numbers of websites, these kinds of technologies are proliferating. Companies such as Grisoft (formerly AVG) recently acquired Exploit Prevention Labs, which works in a similar fashion, for what we reckon was under $10m, and others, such as Finjan, McAfee and Symantec are pushing their entries in this space. Another UK-based start-ip, Prevyx, shares malware information with its global network of users to identify and block malicious code from running on protected machines."

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates DealProfiles.com.

Today's headlines that IBM (NYSE: IBM) is looking at beefing up its security offerings raises the question if management would acquire Israel-based Check Point Software (NASDAQ: CHKP). Val Rahmani, IBM's general manager of infrastructure management for global technology services, sees security as a key to growth. Val said, "We're looking at a lot of different companies right now, as we always do in a number of different spaces within security."

Until now, the thought on the Street was that Check Point was going to continue as a stand-alone company, but with IBM on the prowl, it may be too much for CEO Gil Schwed to resist. Check Point currently trades at a market cap of $5.53 billion, and an acquisition would certainly come with a much higher price tag. Based on valuation, it would take between $7-8 billion to buy the company. For deep-pocketed IBM, that's not too high a price. For Schwed, a takeover at that price would be tough to reject, and it would break all records for M&A of an Israeli company.

Based on IBM's track record, I would doubt that it is going to try to grow its own security business organically; rather, it will most probably purchase a serious player. Stay tuned to see if that player will be Check Point.

Disclosure: Writer holds a position in CHKP. He has no other position in any stock mentioned as of 11/2/07.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com.

Another week, another deal. Google Inc.'s (NASDAQ: GOOG) M&A team has been busy this year. The latest deal: $625 million for Postini.

For a company the size of Google, the price tag isn't big. But the deal is certainly significant. Basically, Postini develops security for email systems. So as Google tries to get more traction from its Gmail service, a top-notch security layer is a must-have. It will also be key in getting a piece of Microsoft Corp.'s (NASDAQ: MSFT) email franchise.

I had a chance to interview Nick Selby, who is the Enterprise Security Analyst with The 451 Group. According to him, "This is Google's biggest security acquisition to date and confirms that it is increasingly targeting the enterprise. The Postini buy also gives Google 35,000 enterprise customers. Postini has been dual tracking for a private sale and IPO. We would have thought it would go for a bit more for an acquisition. So perhaps Google has got itself a good deal as well as a strategic fit."

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.