In terms of technology, the acquisition of Mercury Interactive Corp. (Pink Sheets:MERQ) has been on the agenda for a long time. The list of buyers was led by Hewlett-Packard Co. (NYSE:HPQ) and CA Inc. (NYSE:CA), two competitors in the enterprise computer resources management niche.
The backdrop to the intensifying competition in the field is the huge increase in large companies’ spending on enterprise information systems. When a company spends hundreds of millions of dollars a year on computer systems, it cannot allow itself not to know at any given moment what a hardware or software application is doing. Every small problem can lose it customers.
Software giants spotted the software monitoring and management niche a long time ago. HP’s computer resource management system, OpenView, faces off against CA’s Unicenter, IBM Corp.’s (NYSE:IBM) Tivoli, and the systems of BMC Software Inc. (NYSE:BMC) and Mercury. Everyone is competing against everyone else for everything relating to enterprise computer resource management. For its part, HP has never claimed to be a large software company. Its software business generated $1.1 billion of the company’s total $86 billion revenue in 2005, a very small proportion for a company with a global workforce of 100,000 people and a lot of technology R&D.
With the entry of more companies, such as EMC Corp. (NYSE:EMC), into the field and the growing strength of competitors, HP had little choice but to buy outside technology or try to sell what it had. Aggressive consolidation in the software market over the past couple of years left HP with little maneuvering room. The decision to acquire Mercury cost HP $4.5 billion, and leaves the impression that this was a carefully planned move to consolidate its market position with an important growth engine in the field.
The acquisition of Mercury will, first and foremost, enable HP to add to its product line one of its largest competitors for business technology optimization. In recent years, Mercury definitely positioned itself as the household name in the field with its “Mercury Optimization Centers”, which provide control over enterprise IT systems and applications management. HP said the acquisition would boost sales of its software business to over $2 billion.
In addition, the enterprise IT resource management market cannot remain indifferent to HP’s move. Now that the industry underdog has made such a strategic move, CA will have to respond. After it has made a number of acquisitions in recent years, it will be interesting to see what it will do.
Published by Globes [online], Israel business news - www.globes.co.il - on July 26, 2006
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