Update: CA to acquire Wily for $375 million cash

Deal will extend CA's lineup of management software

CA has agreed to buy application management software vendor Wily Technology for $375 million in cash, the companies announced Thursday.

Wily's software monitors the performance of applications and lets IT managers diagnose bottlenecks and other problems. CA, formerly called Computer Associates International Inc., said the acquisition will extend its own line up of management software, which is focused mainly on managing computer hardware and user identities.

While CA has tended to approach systems management from a data-center viewpoint, Wily has adopted a developer and application management perspective, according to Mark Barrenechea, CA executive vice president of technology strategy and chief technology architect. "We looked into the market over the past year," he said in a phone interview Thursday. "Wily stood out as a very clear market leader."

With Wily as part of CA, the company hopes to provide an application management platform to manage all kinds of applications, from packaged software such as Microsoft's Exchange groupware and SAP AG's enterprise applications to custom applications built around Sun Microsystems' J2EE, Barrenechea said.

Picking up Wily gives CA solid technology and an experienced sales team covering an area CA has struggled with, IDC analyst Stephen Elliot said. The application management software area requires expertise CA, which deals more with infrastructure management, hasn’t had, he said.

CA Chief Executive Officer John Swainson agreed with that assessment. CA is one of the "slugs" in the crowded application management market, he said in a conference call with analysts.

"CA has some offerings, but not the depth and breadth required by out customers. So we went out to find the best player in the marketplace," Swainson said.

If the deal passes muster with regulators, Wily will become a division of CA's Enterprise Systems Management business unit. Wily's chief executive officer, Dick Williams, will join CA to lead the division. Lewis Cirne, Wily's founder and chief technology officer, will also join CA. Wily is based in Brisbane, California, and CA in Islandia, New York.

The companies aren't saying yet how their product sets will be linked up; CA will publish a road map about 30 days after the deal closes. That's expected in about three months pending the regulatory approvals, CA said.

"There's a very, very small amount of overlap of all components" from CA and Wily, Al Nugent, CA senior vice president and general manager of Enterprise Systems Management (ESM), said. The overlap is mostly in relation to an acquisition CA did in the Web services management space of Adjoin Solutions in 2003, he added.

CA plans to use the same approach with Wily as it did when the company acquired Niku into its BSO (business service optimization) group, which it announced in June, according to Nugent. "We'll run it [Wily] as a separate business and hopefully maintain its focus," he said. The division of CA's ESM business will be called the Wily Technology division. CA will also, as in past acquisitions, retain sub-branding, so the Wily Introscope product name will continue, Barrenechea said.

CA plans to retain most of Wily's more than 260 employees, it said.

"It's magical, almost mystical when great product, incredible talent and an impressive customer list align," Barrenechea said, describing the Wily deal. CA has a retention plan in place to try to keep all the Wily staff. "We'll do our darnest to let great talent flourish," he added.

Privately held Wily will contribute about $72 million in revenue in CA's 2007 fiscal year. While CA generally aims to make its acquisitions pay off profitably within a year, it expects the Wily deal to take three years to return its cost, CA Chief Operating Officer Jeff Clarke said. Wily is not currently turning a profit; the company moved into the black a year ago, but decided to sacrifice profitability to further invest in development and expansion, according to Wily executives.

Wily's products are used by about 450 enterprises and government organizations around the world, CA said. Wily customers include DaimlerChrysler, Starwood, British Airways, Honda Motor, Cingular, Barclays Bank and others across 30 to 35 countries, according to Mike Malloy, Wily Technology senior vice president of marketing.

The deal will reduce CA's earnings per share in fiscal 2006 and have no impact on EPS in 2007, it said.

Wily was not for sale or in play, Malloy said. The acquisition arose out of a personal relationship between Wily's Williams and Swainson, he said, with the companies beginning a series of discussions a couple of months ago. "The more we talked, the more compelling the combination became," Malloy said. "Our values are very much in alignment and the fit of the products is just great. "

Wily has "very long-standing and deep relationships" with all the major application platform players, including IBM, BEA Systems, Sun, Oracle, and SAP, according to Malloy. "Those relationships will very much continue as we go forward [with CA]," he said.

Being part of CA will help Wily accelerate its product development, increase the support services it can offer its customers and open doors to more potential users with CA's sales force numbering 2,500 people to Wily's 30, Malloy said.

CA's currently on an acquisition roll with Barrenechea estimating that the company has spent upwards of $1.6 billion on purchases including Aprisma, Concord, iLumin, Netegrity, and Niku. All the purchases have enabled CA to beef up its presence in its four core markets -- security, storage, BSO and ESM. CA will continue to look for more acquisitions, with the company in a position currently to "do an acquisition per quarter," he said.

CA's acquisitions have been savvy ones, but the company needs to show that it has the management skills to make them pay off, IDC's Elliot said.

"[CA's] sales team has multiple tools to use. The big question is, can they get the growth numbers they need for Wall Street?" he said. "They've built their foundation. Now they have to build the house."

(James Niccolai in Paris contributed to this report.)

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