Concord feeds service assurance market consolidation with Aprisma buy

Concord Communications has agreed to acquire Aprisma Management Technologies from Gores Technology Group for approximately $93 million in cash.

Gores, a leveraged buyout organization, stands to realize a great return, according to Patrick Kelly, co-founder and partner at OSS Observer, who estimates that Gore paid less than $15 million for Aprisma.

Gores, which specializes in acquiring distressed assets, bought Aprisma when its parent company, Enterasys (formerly Cabletron), divested of the software assets following an investigation by the SEC, according to Kelly.

Aprisma, which generated approximately $43 million in 2004 revenues, will operate as a business unit within Concord. Aprisma's CEO Mike Fabiaschi will join Concord's executive team and report directly to Concord CEO Jack Blaeser.

Concord, which bills itself as a provider of business service management software, will combine its software, called its eHealth suite, with Aprisma's SPECTRUM IT infrastructure software to create a solution that maps IT services to business processes, measures the actual end-user experience, and manages the entire IT infrastructure. Aprisma’s software adds fault management and sophisticated service modeling technologies to Concord’s portfolio.

The combined offering will help Concord aggressively pursue new opportunities in the BSM, wireless, and voice markets.

The combined companies will have approximately 4000 customers, with three-quarters coming from Concord. Between them, the companies have over 100 technology patents—the result of a combined $650 million in research and development over the last 10 years.

Scott Donahue, senior analyst with Tier1 Research, said the deal is largely a play to strengthen their enterprise offering, which accounts for about 70% of business for both companies. He said it is very similar to EMC’s strategy in its acquisition of SMARTS late last month.

“These vendors are trying to position business service management, which is linking application performance, server performance, and network performance, to assure the quality of applications--enterprise applications or IP-based voice applications like IP-PBX or 3G wireless--delivered to customers,” Donahue said.

And they will be going up against other major players in the root cause analysis space including HP Openview, Micromuse, and SMARTS, Donahue said.

The acquisition is subject to customary closing conditions and is expected to close in the first quarter of 2005. Concord expects the deal to be accretive in 2005.

Although the valuation of Aprisma (at approximately 2.2 times revenue, according to OSS Observer) doesn’t match that commanded by SMARTS in the EMC acquisition (almost 4.5 times revenue), overall valuations increased 70% in 2004 (plus or minus 0.4%), Kelly said, according to a sample of 24 mergers and acquisition through the year.

“The Service assurance segment led all other categories in total transaction value at $847 million--excluding Warburg Pincus’ purchase of Telcordia Technologies,” Kelly said.