Mercury announced in November last year that an SEC-prompted internal investigation had unearthed irregular stock-options practices between 1996 and 2002. This led to the dismissal of CEO Amnon Landan and several other senior executives. It saw its stock slump, and was subsequently delisted from Nasdaq too.
Late in July HP announced that it is buying Mercury for $4.5bn in cash, a result that some observers would argue was the obvious outcome of Mercury’s financial shenanigans. But speaking to Computer Business Review, Mercury’s Quantrell said that, I don’t think [the scandal] was relevant to the deal. I think the pricing shows the value of Mercury to the market, and I think it shows the potential of the company and its execution.
Quantrell noted that, In spite of any issues [around the accounting scandal] we still achieved 22 to 24% revenue growth in ’05.
But with the scandal only becoming public knowledge late in Mercury’s fourth quarter, it is the first quarter of this year that perhaps better reflects what the market thought about the news. Mercury said in a preliminary statement of results that for the first quarter of 2006 it expects revenue growth year-on-year to be in the range of 7% to 9%. This is way down on the year-over-year revenue growth of 27% that it saw in its first quarter of 2005.
Still, neither HP nor Mercury live in the past, but are looking to a future in which the addition of Mercury to HP’s software portfolio not only roughly doubles HP’s software business to almost $2bn in likely annual revenues, but gives it the market leading testing tools software company and a strong player in the emerging category of ‘IT governance’.
Quantrell said that the deal is all about, What the two companies can do together that they could not have done apart. This gives us a platform and a reach that we simply would not have had in the past. It helps us fill some of the spaces we had in Business Technology Optimization, and put together with the Peregrine [acquired by HP] and HP OpenView technology I think the value proposition is very clear.
Quantrell said it is too early to talk about the specifics of integration, but hinted that HP’s plan is probably not to keep the Mercury business very separate from the rest of its software portfolio: The product roadmaps are at an early stage but the way to release value from acquisitions is when you have an integrated approach, he said.
He also denied that there is limited scope for cross selling, despite the fact that as the market leader in testing tools, most of HP’s customers will already have Mercury software somewhere in their enterprise. Analysts say only around 20% of testing done today is automated, so there is still the other 80% to go after, said Quantrell.
We are still seeing growth in the testing tools space, but on top of that of course we have other products in our Business Technology Optimization portfolio, he added.
Quantrell also said that adding HP’s OpenView systems and network management products into the mix fills some gaps in our BTO line, and that while Mercury has its own sizable R&D labs in Israel and Prague, it is also looking forward to seeing what might be of value working with HP’s labs as well.
Quantrell said that Mercury is hopeful that it will be able to hold onto the vast majority of staff, and that HP too has expressed a desire to keep [Mercury’s] talent in the business.
