Computer Associates International Inc, wasting no time in putting its accounting scandal behind it, has agreed to buy Netegrity Inc for $430 million in cash to round out its identity management software portfolio.
The acquisition, evidently initiated by Netegrity and subject to a bidding process involving other suitors, was announced at the same time as Netegrity said that it had missed its sales and earnings target for the third quarter
CA said the deal broadens its portfolio in the segment of its eTrust security business it calls identity and access management, or IAM, software that includes identity provisioning, access control, single sign-on and auditing.
Netegrity effectively rounds out CA’s IAM business by adding the best web security product and a strong user provisioning product to complement our already robust management portfolio, Russell Artz, executive VP of eTrust, said.
Netegrity was until recently a pure-play access control vendor, known for its strength in web-based and extranet-based implementations. Earlier this year it purchased Business Layers Inc, which provides the user provisioning part of the suite.
CA executives said that the two companies’ technologies are complementary. CA’s product line focused more on intranet types of access control. There are, however, some areas of overlap, the firm conceded.
CA has focused on host access control, IT auditing facilities, legacy single sign-on and directory products, so we’re really very synergistic, Artz said. The one overlap area that we’re working on is the very important area of user provisioning.
Netegrity CEO Barry Bycoff said: Even in the provisioning space itself there’s some very complementary technology. But Artz said that CA will still rationalize its provisioning development teams and product lines.
Bycoff said that significant integration work has already been done between its access control software and Business Layers’ provisioning software – the firms were partners for a time before that acquisition – but that work is not yet complete.
Executives from both firms said the deal creates a strong player in the identity management market, one capable of beating off competition from IBM Tivoli and Sun Microsystems, as well as the pure-play vendors.
Today we are the gorilla, so watch out IBM, Bycoff said during a conference call with analysts announcing the deal, brushing off questions about increasing competition in the market being responsible for Netegrity’s third-quarter shortfall.
The company said yesterday that it expects, for the three months ended September 30, pro forma earnings per share of between a $0.01 loss and a $0.02 profit, on revenue of between $19 million and $21 million.
Analysts had expected, on average, EPS of $0.05 on revenue of $24.3 million. Bycoff blamed the timing of deals closing for the revenue shortfall. CA was aware of the miss, and factored that into its offer price, the firm said.
CA’s CFO and COO Jeff Clarke said that the bidding process for Netegrity had started about five weeks ago, with the companies entering exclusive talks last weekend. Netegrity told CA about the sales miss the day after the quarter closed, he said.
The deal, valued at $340 million when Netegrity’s $90m cash-in-hand is factored out, prices Netegrity’s shares at $10.75 each, a 40% premium on Tuesday’s closing price. Netegrity shares shot up 36% yesterday, closing at $10.54, a price not seen since the company predicted a slow 2004 in January.
The acquisition comes just a couple of weeks after CA reached a deal to settle its US federal accounting investigations, a deal which coincided with former CEO Sanjay Kumar being charged with security fraud conspiracy.
With the government investigations resolved, CA is in a position to move forward with a focus on execution and performance, CA interim CEO Kenneth Cron said, outlining an enterprise infrastructure management (EIM) strategy.
Cron, asked by an analyst about future acquisition plans and any holes in its product line it needs to fill, pointed to its recent acquisition of PestPatrol, an anti-spyware software vendor, and said it will look at complementary acquisitions in this area.
The weak spot in the threat management segment of the eTrust business is spam filtering. eTrust Secure Content Manager does enable administrators to create policies for spam filtering, but it appears to lack the automation of rival offerings.