Compared to the drama of the ongoing Oracle/Peoplesoft/J.D. Edwards imbroglio, Mercury Interactive’s takeover of Kintana promises to be a downright tranquil affair.
The friendly acquisition, announced last week, will cost Sunnyvale, Calif.-based Mercury $225 million and position the combined company as a significant player in the IT management tools market.
The acquisition teams Mercury’s tools for helping companies deliver applications — what company executives call “the output of IT” — with Kintana’s IT Governance Suite, which gives IT departments a way to manage their strategy and processes, and make sure they are aligned with the goals of the line of business they are supporting.
With the Kintana purchase, according to analysts, Mercury is following the tried-and-true expansion path used by IT management tools companies like Computer Associates and BMC, which have grown successfully by acquisitions.
“Mercury Interactive has been quietly assembling an excellent portfolio of applications that allows companies to better manage their software assets,” says analyst Joshua Greenbaum, principal at Enterprise Application Consulting in Daly City, Calif.
Last month, Mercury acquired privately held J2EE diagnostics vendor Performant.
Running IT as a business
Mercury sells products to monitor applications and tune them for optimum performance. The firm also offers tools for testing programs for bugs. Oracle turned to Mercury’s quality assurance software last year when it ran into stability problems with parts of its 11i suite of applications.
Kintana’s software lets companies perform tasks such as collecting data on IT resources, finances, time expenditures, and project performance.
The combined product lines offer a way to help IT run itself as a business — what Mercury calls Business Technology Optimization.
“In many respects, IT has been the poor stepchild, it hasn’t been automated,” says Ken Klein, Mercury’s chief operating officer. “During the [dotcom] bubble, there was massive purchasing of technology, but it wasn’t necessarily connected to a business result. Now people are moving from just buying to making what they have work better.”
That’s essential in today’s era of tight budgets, according to analysts, because in many companies, most of the IT budget goes to simply maintaining existing systems.
A Gartner Research report last year estimated that 70% of IT spending went towards “baseline activities,” rather than new projects.
Managing existing IT assets, especially in a tight economy, is “a constant battle,” according to Greenbaum.
“IT budgets are almost always predicated on a percent of overall corporate revenue,” he says. “As revenue drops, budgets drop, so there is a real requirement to cut costs if there’s to be any money left over to do innovation.”