CA EYES ENTRANCE TO TELECOM AFTER PURCHASING CONCORD

Less than one quarter after buying fault and event management provider Aprisma Management Technologies, Concord Communications itself was acquired last week by systems management company Computer Associates International in an all-cash deal worth about $350 million.

The consolidation activity over the last year throughout the space loosely defined as service assurance — but segmented more narrowly by various analysts into fault, performance, event and service management — has been accelerating rapidly.

The premium companies are paying for other firms in this space has risen with it. The average premium paid for acquisitions of companies over the last 12 months is 1.7 times revenue. CA paid 2.36 times revenue for Concord, including revenue from its Aprisma acquisition, said Patrick Kelly, partner and co-founder of analyst firm OSS Observer.

In December, EMC announced its $260 million acquisition of SMARTS, a service-centric network systems management company. That was nearly 4.5 times SMARTS' annual revenue. And last month, IBM agreed to pay $1.1 billion for data integrity provider Ascential Software, which had $271.9 in revenue for 2004. Ascential's software will help IBM address the emerging phase of service assurance, which is called business service management.

Just before Telephony went to print last Friday, Micromuse announced its intent to acquire fault and performance management firm Quallaby for $33 million. Quallaby won a contract last summer with BT that could be worth up to $10 million.

CA chief operating officer Jeff Clarke cited several reasons for acquiring Concord, including the firm's competence in network performance management; engineering expertise that brought it 100 patents; support of IPv6, which is a requirement for government work by 2006; and Concord's acquisition of Aprisma.

With the Aprisma acquisition in particular, Clarke said, Concord became a leading provider of root cause analysis, impact analysis, technology relationship mapping, network discovery and display, event correlation and service modeling.

“[Concord] has capabilities and engineering talent [in this area] that we don't have in Computer Associates. Customers are not buying systems management independently. They want both their systems and network managed,” Clarke said.

Despite plans to integrate Concord's operations into its newly created enterprise systems management business unit and combine Concord's software with its flagship Unicenter enterprise systems management, Yogesh Gupta, chief technology officer of CA, said the company is eyeing the telecom market.

“We have not played in the telco market segment primarily because it has been a very network-driven environment,” Gupta said. “But when it comes to telco service management, [Concord] brings us very interesting opportunities.”

He noted that Concord serves 23 of the 26 largest carriers in the world and said, “To us, this is an enormous entry into that market.”

To Kelly, it's not so enormous. Of Concord's and Aprisma's combined $148 million in 2004 revenue, only about $30 million was derived from telecom, he said. They have about 3500 customers altogether, and that puts average revenue per customer at about $27,000.

“That just doesn't fit the profile of the telecom market,” Kelly said.

He expects CA to leverage Concord more to compete with IBM and BMC in the enterprise market and leave the door open to competitors in the telecom OSS space as it completes the acquisition of the company and the integration of its technology.

And despite gaining all that engineering talent, Kelly said to look for CA to aggressively cut headcount at Concord shortly after the acquisition. “CA is adept at quickly streamlining acquired companies, and Concord has an excess of [senior management] for a relatively small software company.”