Down To Business: Software Industry M&A: What's Next?
IBM's $5 billion deal to buy Cognos caps a frenetic five or six years of consolidation. But there's plenty more action to come.
The OpenView system management platform is the centerpiece of HP's Business Technology Optimization software unit, augmented by the $425 million acquisition of Peregrine Systems in 2005, the $4.5 billion acquisition of Mercury Interactive last year, and the $1.6 billion acquisition of data center automation specialist Opsware in July. HP is just starting to move aggressively into what it labels Business Information Optimization with its internally developed Neoview data warehouse platform, based on the Tandem NonStop operating system. A third software group, called OpenCall, dabbles in software for delivering voice, video, and data services. (HP-UX falls into the server hardware business.)
The BTO division, the biggest of HP's three software units, will generate only about $2 billion in revenue this year, at a company with close to $100 billion in total revenue. So software is still small change for the world's largest IT vendor.
One seasoned industry executive thinks HP "lacks the passion" to be a first-tier software player and is "missing the software revolution." Clearly, if the company wants to compete in software on a scale with IBM and Oracle, it will have to spend its appreciated stock and/or roughly $13 billion in cash on bigger acquisitions. Should Neoview not pan out for HP, data warehouse leader Teradata, recently spun off from NCR, is one possibility, especially given HP CEO Mark Hurd's and CIO Randy Mott's historical ties to the company. (Going after BI appliance vendor Netezza is a smaller-scale possibility.)
Maynard thinks HP might consider a blockbuster deal to buy security vendor Symantec, especially for its Veritas storage management holdings, or McAfee as a purer security play. HP probably won't be interested in CA or BMC, given their mainframe roots. One "crazy idea" Maynard broaches: an HP-EMC merger.
No major industry player has reinvented itself through acquisitions quite like EMC has over the past several years. Since 2000, EMC has spent more than $7 billion on a couple of dozen acquisitions, transforming itself from a supplier of increasingly commoditized storage hardware to a purveyor of "information infrastructure," including software for storage management (Legato), data encryption and identify authentication (RSA), security event management (Network Intelligence), content management (Documentum), digital rights management (Authentica), and virtualization (VMware).
Where does EMC go from here? Tough to say. EMC will probably stick to information infrastructure, perhaps even straying into data management by going after a Teradata or Netezza. And maybe that hook-up with HP doesn't look so crazy after all.
The old Computer Associates used to buy companies (it made more than 150 acquisitions over three decades), slash costs, milk those acquired businesses, and foist other CA products onto the acquired companies' customers. Those acquired companies and products were all over the IT map.
Under CEO John Swainson, CA has gotten its financial house in order and narrowed the product focus to three areas: systems management (with Unicenter at the core), security management, and storage management. Long gone are the ERP and database lines that never quite fit.
Within the context of those three broad product areas, CA will acquire mostly midsize companies, in the $50 million to $100 million revenue range. CA says it isn't interested in blockbuster acquisitions (remember the $9 billion hostile takeover attempt for Computer Sciences?), though a larger suitor (HP?) could swoop in, or a merger of equals (Symantec?) could be in the cards.
Symantec is still digesting its $13.5 billion acquisition of storage and backup vendor Veritas -- and that came three years ago. Still, the company's made about a dozen acquisitions since 2005, mostly in security and compliance. CEO John Thompson has said to expect even more acquisitions from Symantec -- early-stage companies that need the resources of a bigger company to really take off, or market leaders in a strategic market segment. Security is still the main focus.
Best of the Rest
Is there a big, pure-play software-as-a-service merger down the road? Salesforce.com, a pioneer of the SaaS model and the clear market leader in CRM services, already has created a developer ecosystem around its AppExchange platform. One or more of the promising AppExchange partners could become acquisition targets. Meantime, startup Workday, led by PeopleSoft founder Dave Duffield, is starting to make a name for itself in ERP SaaS and is ready to become a limited AppExchange partner (limited in that it will continue to use its own service-delivery platform). Salesforce.com is an early Workday customer. They'd be the most interesting combination.
What about the big Indian service providers? Big 3 Tata, Infosys, and Wipro are probably too big to be acquired by one of the software giants, and they're considered too conservative to make a blockbuster software acquisition. The Indian giants will probably make smaller acquisitions to provide customers with deeper vertical industry capabilities.
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