Top computer industry mergers and acquisitions of 2006, part 2

Every computer industry acquisition or merger affects the channel; from open source to proprietary software, services to security, here are the top hookups of 2006.

See the part one of this story for the first five of The top 10 mergers and acquisitions of 2006.

Top 10 mergers and acquisitions of 2006 -- Part 1

6. General Dynamics Information Technology/Anteon International -- Infrastructure builder extends integration

  • Specialties: Command, communications, intelligence, surveillance systems/systems integration and engineering
  • Reason for merger: To extend the design and integration capabilities of DG's IT services group, which specializes in network infrastructure, and to consolidate the structure of GD's IT services groups into a coherent whole.
  • Cost: $2.2 billion
  • Reason the channel should care: More high-level, global competition from a government-IT channel company spun off from a defense contractor.

    The government channel has been a hot bed of M&A in recent months, a trend underscored by General Dynamics Corp.'s acquisition of Anteon Corp.

    The $2.2 billion deal propelled aerospace and defense contractor into the top tier of the enormous federal IT market. Anteon, a $1.5 billion federal integrator, has been melded into General Dynamics Network Systems unit to create General Dynamics Information Technology. That unit targets defense, intelligence, homeland security and civilian government sectors.

    The addition of Anteon takes General Dynamics to a new level in IT, according to Mike Chandler, president of General Dynamics Information Technology. "This takes us from Pawtucket to Fenway Park," according to Chandler, a Boston resident.

    Speaking at a General Dynamics investor conference, Chandler said the Anteon acquisition fills gaps in the company's IT business, which had previously focused on network infrastructure services. Anteon provides a range of professional services as well an emphasis on simulation and training.

    An Input Inc. study places General Dynamics at the top of the government IT M&A trend. The market watcher cited General Dynamics, L-3 Communications and Lockheed Martin as the only companies that initiated five or more transactions in 2005. The Anteon deal was announced in December 2005 and closed in June 2006.

    7. HP/Mercury Interactive -- App control added to IT management suite

  • Specialties: Network and systems management/application development management
  • Reason for merger: To add Mercury's tools for the management of application development to HP's OpenView systems and net management apps.
  • Cost: $4.5 billion
  • Reason the channel should care: HP partners get better end-to-end IT and project-management tools; non-partners lose one non-competing source for those tools.

    Hewlett-Packard Co.'s $4.5 billion purchase of Mercury Interactive Corp. adds another layer of applications to the company's already considerable software holdings.

    Mercury offers software quality testing and IT project management among other products under the company's "business technology optimization" banner. Industry observers believes the deal, which closed in November, will complement HP's software stable. "There is no doubt that Mercury Interactive will sit well alongside its many recent software acquisitions with the HP OpenView suite of systems management offerings," wrote Tony Lock, a research director with The Sageza Group, in a research brief. "Together the portfolio will offer considerable breadth and depth."

    According to HP, the Mercury acquisition is expected to boost the size of HP Software to more than $2 billion.

    Mercury also boosts HP's prospects in the burgeoning market for service-oriented architecture (SOA) products and services. Mercury, through its acquisition of Systinet, offers one of the leading SOA repositories, which let customers track and manage the services they have developed.

    8. IBM/ISS -- Services giant extends security potential

  • Specialties: Hardware/software infrastructure and services/security applications
  • Reason for merger: IBM continues to expand information-management services offerings with ISS' security and content management from FileNet, which it also acquired this year.
  • Cost: $1.3 billion
  • Reason the channel should care: Market for managed security services is around $22 billion; IBM's market share is expanding.

    IBM bolstered its presence in the managed security services market with its October acquisition of Internet Security Systems Inc.

    The $1.3 billion deal was IBM's largest purchase since 2002, when it acquired another services-oriented company: PriceWaterhouseCoopers. ISS remotely manages such security components as intrusion detection systems and firewalls. Managed services contributed around 15% of the company's revenues in recent quarters. ISS' subscription business, which includes managed services, represents its largest source of revenue.

    ISS also contributes security software, appliances and a channel background. According to a Securities and Exchange Commission filing, ISS generated about 81% of its sales in the June quarter via integrators, resellers and distributors.

    "We intend to use [the channel's] capabilities in the future to reach larger customers through joint selling efforts and to reach departmental and small companies," the SEC document stated.

    Analysts are watching whether the pursuit of smaller customers continues under IBM. ISS now operates as a business unit within IBM Global Services, which mostly focuses on entities with 1,000 or more employees, according to Joyce Becknell, a research director with market researcher The Sageza Group.

    Becknell said some evidence points to IBM targeting customers beyond the enterprise, however. She cited recent moves on IBM's part to create replicable services at price points affordable to a greater number of customers. The replicable services tack currently applies to data center and mobile technology services, but Becknell said IBM's approach may foreshadow IBM's plans for ISS' services.

    "I believe that partners can resell these services, although at this point IBM provides the delivery for them," Becknell said. "I think we'll need some time to see it deployed and picked up by channel and customers," she added.

    9. Red Hat/JBoss -- Open OS gets open source app serving

  • Specialties: Linux/open source middleware
  • Reason for merger: To "extend the open-source stack" for customers who want to build apps on non-proprietary servers.
  • Cost: $350 million
  • Reason the channel should care: More products to build, customize, support -- without products or pressure from major IT vendors.

    Red Hat's June purchase of JBoss marked a key acquisition in the open source market.

    The $350 million transaction broadened Red Hat's product offering beyond enterprise Linux. Red Hat execs said JBoss' open source middleware will enable customers to deploy next-generation Web applications on an open source platform.

    The upshot for resellers is product variety.

    "In terms of an impact to the channel, Red Hat channel partners will have a great variety of offerings available for resale," according to Raven Zachary, senior analyst and head of The 451 Group's open source practice. He said he expects to see additional Red Hat acquisitions as its fills out its open source portfolio.

    For now, channel partners can avail themselves of JBoss enterprise middleware and Red Hat Application Stack subscriptions. The latter includes support for Red Hat Enterprise Linux, JBoss Application Server, JBoss Hibernate, and such open source databases as MySQL and PostgresSQL.

    Zachary said that channel partners may have to "deal with more competition with Red Hat directly, especially in regards to training and consulting." JBoss offers training and consulting services.

    Beyond the Red Hat-JBoss deal Zachary pointed to Oracle's acquisition of Sleepycat as another open source transaction of note in 2006. He said the deal doesn't have much impact on the channel, but speaks to Oracle's positioning relative to open source database products.

    10. Seagate/Maxtor -- Major disk-drive maker, seeks same

  • Specialties: Disk drives
  • Reason for merger: Consolidate competition; expand channel and customer base Cost: $1.9 billion
  • Reason the channel should care: One fewer disk driver maker; one bigger source of disk drives.

    System builders saw a familiar giant grow still larger in 2006 when Seagate Technology completed its acquisition of Maxtor Corp.

    Seagate, the world's top hard drive supplier, acquired Maxtor for about $1.9 billion in a deal that closed in May. Over the past few months, Seagate has moved toward a common Seagate-based drive technology, but plans to maintain the Maxtor brand and channels.

    Brian Dexheimer, Seagate's chief sales and marketing officer, said the company found that a significant percentage of Maxtor's distribution partners and those partners' reseller and integrator buyers were unique to Maxtor.

    Earlier this month, he told attendees of a Lehman Brothers technology conference that about half the channel players on the Maxtor side, particularly outside the U.S., did not duplicate Seagate's channel roster. He added that 80% of Maxtor's system builder customers were unique to Maxtor.

    Dexheimer called the channel footprint a key lever in retaining revenue in light of the acquisition; the company expects some share erosion as a consequence of combining product lines. At the end of 2005, for example, Seagate had a 30% slice of the 3.5-inch ATA drive market, while Maxtor held a 20% share, Dexheimer said. At the end of September 2006, the combined company's share was 41%.

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