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The 451 Group Predicts $3-4 Billion in Software M&A Over the Next 18 Months

Posted on: Thursday, 5 August 2004, 06:00 CDT

New 451 Special Report looks at how traditional network and systems management vendors will acquire and integrate application monitoring companies into their frameworks; likely acquirers include BMC, CA, Concord, HP, IBM and InfoVista

A report released today by technology industry analyst company The 451 Group outlines what its analysts believe will be a rapid convergence within the enterprise IT arena of the network and application management market segments. Over the course of the next 18 months, 451 analysts believe, vendors ranging from Hewlett-Packard to Concord Communications will cumulatively spend at least $3-4 billion to acquire application performance monitoring firms, as well as a host of other network and application visualization and analytics technology companies. This new software industry M&A activity will follow more than $2 billion in deals already announced over the past two years in this segment, with the most recent being IBM's acquisition of Cyanea Systems.

Network management software vendors have, until now, lived in a far different world from that of application management software vendors. Most enterprises have completely separate departments handling these two functions, and the sales channels of the vendors rarely cross paths, which underpins what is a fundamental disconnect between these two market segments.

The 451 Group, however, has found that several market drivers are causing these worlds to collide. IT organizations are demanding unified tools that manage applications and networks with a holistic view, thus allowing them to reach a higher level of enterprise control and subsequent ROI. And next-generation computing models - such as grid and on-demand computing - require a unified management platform to reach their full potential.

This analysis and additional insight is contained in a new 451 Special Report - When worlds collide: the convergence of network and application management - released today by The 451 Group. The report identifies the most compelling segments of convergence activity and examines a cross section of key vendors within these segments. It provides an analysis of gaps in the offerings of current market leaders, identifies market opportunities that should direct future product deployment and vendor competition, and provides a detailed account of the subsequent positioning, investment opportunities and marketplace M&A that will ensue.

The report is 196 pages in length and was written by lead author Rachel Chalmers, Senior Analyst, Enterprise Software, together with Chris Noble, Sector Head, Networks & Media; Max Smetannikov, Senior Analyst, Networks & Media; and Steve Wallage, Director of Research for The 451 Group.

Key Findings of this 451 Special Report -0- *T -- Convergence between network management and application management platforms is under way and will accelerate through both internal development efforts and M&A activity over the next 18 months. Convergence will take place in four major waves as function-specific products are increasingly incorporated in product suites. As this occurs, vendors of point products will decrease in favor as buyers opt for the more unified offerings. -- The key factors driving customer demand for converged offerings from vendors are: -- Users' desire to reduce costs and reduce the number of management vendors from which they procure products -- IT organizations' need for a holistic view of the network and applications to unlock the potential of business process management and grid computing -- Network management vendors' desire to leverage existing assets -- Application management vendors' desire to find a lucrative exit strategy. -- Of the more than $2 billion in announced M&A deals over the past two years, this 451 Special Report highlights three key transactions that are of particular significance: -- Veritas' (Nasdaq: VRTS) acquisition of network management provider Precise Software for $609 million on Dec. 19, 2002. -- Micromuse's (Nasdaq: MUSE) acquisition of IT infrastructure management company Network Harmoni for $23 million on Aug. 20, 2003. -- Mercury Interactive's (Nasdaq: MERQ) acquisition of application mapping software provider Appilog for $49 million on May 12, 2004 -- 451 analysts expect primary acquirers to include companies such as BMC (NYSE: BMC), Computer Associates (NYSE: CA), Concord Communications (Nasdaq: CCRD), Hewlett-Packard (NYSE/Nasdaq: HPQ), IBM (NYSE: IBM) and InfoVista (Nasdaq: IVTA). -- 451 analysts believe that potential publicly traded targets include BMC, NetIQ (Nasdaq: NTIQ), Opsware (Nasdaq: OPSW), Quest Software (Nasdaq: QSFT) and RadView (Nasdaq: RDVW). Among privately held companies, primary acquisition targets will include application management companies, such as AltaWorks and ProactiveNet, which offer the broadest range of application-specific monitoring and management agents; secondary acquisition targets will include firms such as Collation, Relicore and Troux Technologies, which offer high quality data-visualization and analytics modules needed by network management companies. -- The eventual winners in the convergence game will be those companies that manage to create unified systems around central repositories and analysis layers. -- Despite their enthusiasm for converged products, CIOs are concerned about the possibility of ending up with a cumbersome and expensive integrated framework that doesn't work as well as the various best-of-breed point products. They are also worried about the difficulty of integrating the two very different "cultures" of in-house network management and application management teams. These concerns may slow adoption of converged services until the concept is proven. *T

Key Companies Covered

The report includes in-depth competitive assessments of the following companies (although this is not a complete list of companies covered in various sections of the report): Altaworks, Apparent Networks, Aprisma, Cendura, ClearSight, Computer Associates, Compuware, Concord Communications, Ellacoya, Euclid, Hewlett-Packard, IBM, InfoVista, Managed Objects, Mercury Interactive, Micromuse, Motive, NetQoS, NetScout, Network General, Network Physics, Panacya, Path Communications, ProactiveNet, Relicore, SilverBack, Smarts, Tonic Software, Troux Technologies, Vieo, Wily and Xaffire.

Analyst Perspective

"We expect to see significant M&A activity over the next eighteen months, as the network and systems management framework vendors move into monitoring applications," said Rachel Chalmers, Senior Analyst for Enterprise Software with The 451 Group and lead author of the report. "Pure plays in application performance management must be acquired to grow, and the publicly traded framework vendors need to add features to improve enterprise control and meet customer needs."

"We've already seen significant M&A over the past two years through deals such as Veritas-Precise, Micromuse-Network Harmoni, Mercury-Appilog and, most recently, IBM-Cyanea. And we expect companies such as Computer Associates, Hewlett-Packard and IBM, as well as BMC, Concord Communications and InfoVista, to become more aggressive acquirers both in application performance management and also in improved network performance visualization and analytics."

Report Orders

To learn more about this report, or to discuss developing a client relationship with The 451 Group, contact Simon Carruthers, Vice President, Research Services, via phone at 212-505-3030 x-103 or via e-mail at: simon.carruthers@the451group.com.

About The 451 Group

The 451 Group is a technology industry analyst company focused on the business of enterprise IT innovation. The company's analysts provide critical and timely emerging-technology insight to clients at vendor, investor, services and end-user organizations - insight that aids both strategic and tactical decision making for competitive advantage.

The 451 Group is headquartered in New York, with offices in key locations, including San Francisco, London and Boston. For additional information on the company or to apply for trial access to its services, go to: www.the451group.com

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