The acquisition provides CA with its first real-time eyes into J2EE application management. The move also comes a day after shares of one of CA’s biggest systems management software rivals, BMC Software, surged nearly 10% on speculation of a takeover. It comes on the heels of nine previous acquisitions made since IBM veteran CEO John Swainson took the helm at CA.
Wily, which has been the leader in instrumenting J2EE transactions, was already on a healthy growth tear before CA swooped in. Revenues grew at 48% in 2004, with 2005 figures expected to chime in at a 75% gain.
CA says the technology will boost its own line of systems and data management software in an area which it has up to now largely overlooked — namely enterprise application management software, a growing market pegged to exceed $1bn in 2007.
Until now, CA has tended to focus its product portfolio on infrastructure management (managing computer hardware and user identities), a point acknowledged by Swainson, who referred to his company as one of the slugs in the application management marketplace in a conference call with the analyst community yesterday.
We have some offerings in this space. But they’re not as deep or broad as our customers need. So we went out to find the best player in the marketplace, Swainson said.
According to Wily CEO Dick Williams, the company wasn’t for sale. But Swainson is apparently a close buddy of Williams and approached Wily about a possible merger in September last year.
Williams said that even though venture-backed Wily was outpacing the growth of its rivals in the sector, he saw an opportunity for more rapid growth by aligning itself with a larger IT firm like CA. There were no other players competing to buy the company.
Application management has always proven a black hole for systems management vendors. Although providers such as BMC have had knowledge modules, or adapters, to ERP systems, few have successfully instrumented down to the J2EE level.
For the most part, this has been the domain of standalone consoles provided by Java appserver vendors. Similar gaps exist in the managing and monitoring of web services.
A key stumbling block is that systems management and applications management are peddled to different crowds. While CA Unicenter, along with HP OpenView and IBM Tivoli have established customer bases among system administrators, applications have been the domain of software maintenance organizations, and increasingly, business units themselves.
Furthermore, both sets of products provide different kinds of views. While systems management frameworks tend to focus with a top-down view from the network or server, those views are meaningless to application managers who want to see if incoming customer orders are flowing freely. Instead, they need bottom-up views to show what happens to an individual transaction or set of transactions as it travels through the system.
Wily has distinguished itself by its ability to drill down non-intrusively inside a J2EE appserver to show what’s happening from the transaction point of view. For instance, it recently introduced an error detector feature that can flag errors such as HTTP 404 (page cannot be displayed) while the problem is occurring. Wily’s customers, such as DaimlerChrysler, which uses Wily’s products for its global dealer networks, rely on its technology to keep a real-time eye on web transactions.
Significantly, about half of Wily’s customer base uses IBM WebSphere. According to Mike Malloy, Wily senior vice president of marketing, Wily already has a lab-to-lab technology relationship with IBM. Malloy expects the relationship to continue, in spite of the potential competition with Tivoli.
Wily has been one of Silicon Valley’s few bright spots since scoring its first funding in 2000. It even made it into the black in 2004, but subsequently ramped up investment to grow the product set. Back in October, it acquired TimeStock, which added the ability to instrument the user experience on the browser side. The result was the ability to trace a transaction originating at the appserver, and seeing what happened to it after traveling though the Internet cloud.
Today the company has 450 customers, mostly in the Global 2000, of which roughly 100 are shared with CA. While the entry price for Introscope, Wily’s flagship product, is around $200,000, it is increasingly seeing multi-year deals venturing as high as $10 – $20m.
Excluding developing regions such as Eastern Europe and Asia/Pacific, Wily primarily sells direct. It will continue doing so, especially with CA planning to beef up the sales force. Wily was also starting to see partner deals, such as Accenture, which is building a J2EE management practice. Wily also has a bundling relationship with SAP NetWeaver, plus a technology alliance with Siebel, which is now part of Oracle.
Although Wily was clearly on the IPO track when CA called, it would have been tilting against windmills, with venture capital-backed IPOs having declined 40% last year.
Going forward, CA plans to operate Wily under its current name as a separate business unit within the Enterprise Systems Management business, the same area that includes Unicenter. The current management team will stay on, and CA is putting incentives in place to retain the rest of the staff.
In so doing, CA will be following the same model by which it acquired Niku. Since it closed on the deal back in August, CA increased sales and support investment by 50%, while continuing to operate Niku as a separate business unit in the Business Service Optimization (BSO) area.
Standalone doesn’t mean abandoned, joked Alan Nugent, senior vice president and general manager of Enterprise Systems Management at CA.
A product roadmap will be announced within 30 days after the deal closes. For now, says Nugent, there is only very small amount of overlap relating mainly to Web services management technology acquired from Adjoin Solutions Inc back in 2003. Like most mergers, the first changes will likely be linking the products behind the same user interface, with integration to CA’s management database engine expected later on.
The Wily acquisition can be seen as part of CA’s new strategy to shift into new growth markets in order to offset its traditional, but slowing mainframe business. According to some analysts CA gets more than half of its sales from mainframe-related sales and services.
Financing the deal from its $1.6bn cash reserves, CA expects that the deal will dilute earnings by 2 cents per share in FY2006, become revenue neutral in 2007, and accretive after that. CA expects the all-cash transaction to clear regulatory approvals within 90 days.
CA expects the deal to pay for itself in three years, which is surprising since the company usually works to make its acquisitions profitable within a year. It’s perhaps a sign that CA is in the application management market for the long run as opposed to some of the other knee-jerk buys in the past.
Shares of CA dipped slightly at 0.4% to 28.31 on the NYSE in afternoon trading yesterday. The deal is expected to close by the end of March.
