Tag: CA

A new frontier in IT management M&A

Brenon Daly

Contact: Brenon Daly

Few areas of software have seen more consolidation than the broad bucket known as IT service management (ITSM). Where vendors were once selling relatively simple helpdesk software, the offerings have evolved – primarily through M&A – into broader IT management platforms. The deals have ranged from massive strategic bets (Hewlett-Packard’s $4.5bn reach for Mercury Interactive, for instance) to tiny technology tuck-ins (e.g., EMC’s March 2008 addition of Infra Corp).

But what we hadn’t really seen in this flurry of dealmaking is an acquisition focused on mobile capabilities. Well, that was true until Thursday, when BMC Software reached for Aeroprise. (BMC is slotting Aeroprise into its Remedy portfolio, a business that BMC acquired in 2002 for $347.3m from bankrupt parent company Peregrine Systems.) The acquisition bolsters BMC’s ability to deliver its ITSM tools to smartphones and tablets of all flavors. And BMC knows the startup very well. It has been selling Aeroprise products (branded as a BMC offering) for the past year.

Updata secures a bargain from CA

Brenon Daly

Contact: Brenon Daly

When CA Technologies ‘partnered’ with Indian outsourcing firm HCL Technologies to try to offload its security business in November 2007, we termed the move a ‘kind-of, sort-of’ divestiture that was unlikely to fit well with either party. Three and a half years later, the full divestiture is finally done: CA sold it to Updata Partners last week. Although terms weren’t disclosed, we understand that Updata is paying only about $10m for the business, a price that reflects just how much the division had suffered under the joint venture. The roughly $50m in sales at the unit is less than half the level it was at the time of the CA-HCL accord.

The fact that CA got any money for its security assets surprised some. We hear from several participants that at least one bidder put forward a ‘cashless’ offer, offering to take the unit off of CA’s hands for only the assumption of liabilities. (We gather that there was some interest in the business from a few of the larger, privately held security vendors, while from the financial world, both Platinum Equity and Symphony Technology Group were rumored to be bidders.) However, the deal was a very complicated one, not the least of which because there were some questions about the revenue sharing with HCL.

The split ownership, exacerbated by uneven commitments from the two sides, meant that the security business itself was rather starved, particularly for sales and marketing support. (It didn’t help that the division focused on consumers and small businesses, while its corporate parent, CA, targets enterprises. CA will continue to sell enterprise security offerings, which is primarily its identity and access management software.) Out from under the untenable ownership structure, the security unit will likely enjoy renewed focus and resources from its soon-to-be owners at Updata as the buyout firm tries, first, to stabilize the business and then ultimately get it growing again. The deal should close next month.

M&A market timing at CA

Brenon Daly

Contact: Brenon Daly

After a two-year hiatus that ended last fall, CA Inc has returned to the market with newfound enthusiasm. With the vendor’s purchase on Monday of network performance management provider NetQoS, CA has now inked six acquisitions over the past 12 months. That comes after an extended period (September 2006 to October 2008) when the normally acquisitive company stepped out of the market entirely.

During that time, CA’s four large rivals (BMC, Hewlett-Packard, IBM and Symantec) announced a total of 61 transactions between them. Collectively, the quartet of buyers paid roughly 5.7 times trailing 12-month (TTM) revenue in the deals they did. (That’s the median valuation from the more than 20 transactions that either had terms disclosed or where we estimated the numbers.)

So from CA’s perspective, sitting out a period marked by historically high valuations might not be a bad thing at all. Consider this: CA’s purchase of NetQoS cost it $200m in cash, which worked out to 3.6x TTM sales. If we slap the prevailing multiple from the period CA was out of the market (5.7x TTM sales) onto CA’s most-recent deal, the price for NetQoS swells to $320m. Obviously, there were vastly different assumptions about growth rates in late 2006 and early 2007 than there are now, which goes a long way toward explaining the nearly 40% ‘discount’ that CA got by inking the NetQoS purchase on Monday rather than when the market was hot.

Former high-flyer Cassatt sold in low-multiple deal to CA

Brenon Daly

Contact: Brenon Daly

Few datacenter startups in recent memory have commanded as much attention – or as much investment – as Cassatt. The company, which drew in some $100m in backing, had top engineering talent and proven executives, starting with CEO Bill Coleman. Realizing the promise of all that, however, has proved difficult for Cassatt. It has shuffled through a number of business plans, trying to find a viable strategy. And now, we understand, Cassatt has sold to CA Inc for a fraction of the amount it raised. An announcement is expected next week.

It’s an unfortunate – if unsurprising – end to Cassatt. The company has been for sale for several months and we understand that a number of tech giants, including Oracle and IBM, looked at Cassatt. We can only imagine that talks with any would-be buyers must have been complicated by the fact that they would have had a hard time knowing exactly what they would be buying. Cassatt itself would have had a different answer, depending on when the question was asked.

In its early days, Cassatt was a high-performance computing vendor, but then switched to utility computing and, most recently, positioned itself as an eco-efficient IT vendor. (One byproduct of the ever-evolving business model is that Cassatt was only able to collect two dozen or so customers over its six-year history. We understand that the company did about $12m in revenue last year.) That’s not a knock on Cassatt. The company had grand plans – and raised money to match them. But in the end, it was probably too early into this market. Cassatt’s technology may well play a role in helping to manage the datacenter in the future, but that’s up to CA now.

CA back in M&A

Brenon Daly

Contact: Brenon Daly

It turns out that there is some shopping going on out on Long Island, after all. Back in September, we noted that CA Inc had been out of the market for two years and that some bankers weren’t ‘bothering with the trip’ out to the company’s headquarters. (On a recent call with CA’s corporate development team, which has added four members since the start of the year, one participant good-naturedly tweaked us that he had to end our call to catch a meeting a meeting with a banker.)

Since our original piece, the company has done a lot more than just meet with bankers or ‘book read.’ It has closed three deals and has others in ‘various stages.’ (One note about the M&A pause: CA skipped a period of high-priced deals, and will undoubtedly find that it will get more bang for its buck in the current environment and into next year. In our recent survey of corporate development officials, nine out of 10 said private company valuations are going to come down in 2009.)

The return to shopping is part of CA’s announced intent to add 1-2% of revenue through acquisitions over the year. (On a current $4.1bn revenue base, that works out to $40-$80m of sales at acquired companies.) CA will likely be talking about that – along with other financial matters – during its annual meeting with Wall Street analysts on Friday.

CA’s return to the market

Date Target Target sector
November 13, 2008 Eurekify Identity & access management
October 15, 2008 Optinuity Infrastructure management
October 7, 2008 IDFocus Identity & access management

Source: The 451 M&A KnowledgeBase

CA: Ghosts of deals past

Brenon Daly1 Comment

When CA Inc opens the doors for its annual meeting today, we expect there will be more than a few ghosts floating around the hallways at the company’s Long Island headquarters. CA, which has been under one form of investigation or another for much of this decade, can’t seem to leave the past behind. Just last week, in a sort of Shakespearian development, the former chief executive, currently in jail, lobbed the charge that the company’s board and other executives knew all about the book-cooking. Sanjay Kumar may have initially taken the fall for the company’s ’35-day months,’ among other shady accounting practices. But now he’s looking to drag others down.

We mention the latest courtroom contretemps because we have the sense that it has taken CA out of the M&A market. CA, which typically buys a handful of companies each year, hasn’t inked a deal since July 2006. (One of those acquisitions, in the late 1980s, actually brought Kumar to CA.) While we have heard rumors that CA may be on the verge of ending the two-year drought, nothing has been closed. (One set of rumors had CA looking at acquiring a systems management vendor.) Further, a few conversations with bankers indicate that not many of them are bothering with a trip out to Long Island to pitch possible deals. That’s understandable, since the company’s lawyers are probably too busy with other matters to look at a deal book.

CA deal flow

Year Deal volume
YTD 2008 0
2007 0
2006 6
2005 6
2004 3
2003 4

Source: The 451 M&A KnowledgeBase