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May 28, 2008updated 19 Aug 2016 10:07am

ASG On Verge of Massive BSM Acquisition

I caught up with Allen Systems Group (ASG) founder and CEO Arthur Allen recently, and he told me his firm is on the verge of the largest acquisition in its history."We're already in negotiations to do another acquisition, of a company with sales in

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I caught up with Allen Systems Group (ASG) founder and CEO Arthur Allen recently, and he told me his firm is on the verge of the largest acquisition in its history.

“We’re already in negotiations to do another acquisition, of a company with sales in the region of $250m to $275m annually,” Allen told me.

ASG is one of the largest privately-owned software companies in the world, and during its 22-year history it has made over 30 acquisitions. With its roots in mainframe performance management products, the company evolved into systems management, and now puts itself in the business service management (BSM) camp.

Allen is not yet ready to disclose the name of the company it is in negotiations to acquire, not least because the firm in question is publicly held, and listed on Nasdaq…

Allen says the cost of complying with regulations like Sarbanes Oxley has made it harder for some companies to remain public: “They [the company ASG is in the process of buying] spent $10m on auditing and compliance last year,” said Allen. “I spent $300,000.”

The cost of Sarbanes is so high that it has a significant impact on smaller public firms’ profitability. That’s one of the reasons that so many public technology firms have been acquired and taken private. NetManage was bought by privately held Rocket Software, for example, and many others such as Serena, WRQ and Attachmate have been bought in private equity deals.

“The cost of Sarbanes can make a 5-10% difference on pre-tax profit,” said Allen. “For that reason I don’t believe there will be any companies still public with revenue of less than $100m. They will all be acquired or merge with each other.”

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Over the last decade, ASG has seen average annual revenue growth of 28%, including the effect of those 30-odd acquisitions. But between 2007 and 2008, Allen says the company expects to see growth of over 300% — from around $300m last year to over $1bn for full-year 2008.

Acquisitions will play a part in that growth, but Allen said that organic growth in the firm’s BSM market will play a large part too. “Our customers demanded that we federate our [numerous management] technologies into a business service platform for business service management,” Allen said. “Before we did that our sales pipeline was in the region of $200m, now it’s $1.25bn. We’ve added a billion dollars to our pipeline by having the best BSM platform out there. I’ve never seen anything like this, it’s the most successful thing I have seen. “

“People are calling us an overnight success but I say we are a 22-year overnight success,” Allen added. “It’s taken us 22 years to get the strategy in place and put together the right technology portfolio.”

ASG is not alone in the BSM space, competing with the likes of BMC, IBM, CA, Compuware and HP as well as BSM specialists like Managed Objects, Digital Fuel Technologies, Oblicore, and newScale to name a few.

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