Jan 7 2006

CA Acquires Wily Technologies for $375 Million

On Thursday CA announced that it was buying Wily Technologies for $375 million.  I had a busy day and didn’t fire up FeedDemon (2.0 Alpha 1 – very very cool) until the evening to go through my 400+ RSS feeds, but I figured I’d see some commentary on it.  When I read through my feeds Thursday night, I saw lots on CES, GooglePack, Google / CBS, Google Video the impending release of Skype 2.0, and Microsoft Urge, but only one post on the CA / Wily deal.  Huh?  I had exactly the same feeling that I wrote about early in December after Liberty Media acquired Provide Commerce for $477 million but all anyone wanted to talk about was the Yahoo / del.icio.us deal.

Now – I know everyone (except me) was hanging out at CES, but this is a significant deal!  Fred Wilson has his fantastic “VC Cliche of the Week” series and I pondered doing a “VC Deal of the Week” series.  I decided that I didn’t want to pressure all of the investment bankers in the world to provide me with at least one notable deal each week, so I ended up deciding to simply create a new category called “Deals” and regularly write about ones that I think are sizeable and – for whatever reason – have eluded mainstream blog commentary.  I’m not going to play Jr. Financial Analyst and give you reams of financial data – if you are interested in that, I’m sure one of the financial analysts that have written research about the deal will do that.  Rather, I’ll try to give some qualitative context, tell a story or two, and try to explain what I think is interesting about the deal.

The CA / Wily deal is an important one because it’s another acquisition in the steady stream of companies that were possibly queued up to go public in 2005 (now 2006) that chose to be acquired instead.  It’s also reinforcement of the multiples that buyers are willing to pay for sizeable, high growth companies even if they aren’t profitable (although – given Wily’s size – it’s likely that it could have easily been profitable if it wanted to be – merely by sacrificing some growth.)  It also reinforces that CA continues to be one of the active acquirers in the IT Management software segment – in addition to IBM, HP, Microsoft, Quest, BEA, Oracle, and maybe Mercury if they dig themselves out of the SEC ditch they have found themselves in.

I’ve got a long indirect history with Wily.  I was on the board of Cyanea – which was the #2 VC-backed provider of APM (Application Performance Management) software (behind Wily).  Cyanea was coming on strong, inflicting some real competitive damage – especially because of their OEM agreement with IBM (where IBM actively sold Cyanea’s products under the IBM brand).  At the time John Swainson (now the CEO of CA) was running the IBM Websphere group and was the internal IBM champion for Cyanea.  While Cyanea was making great progress, as some point IBM made the proverbial “offer we couldn’t refuse” and acquired Cyanea in July of 2004.

At the time, my instinct was that this was a huge issue for Wily and the IBM acquisition of Cyanea was a potential threat to their long term well-being.  Clearly I was wrong – it appears from the information that CA released that Wily has been growing over 70% per year and is in a position to continue this aggressive growth.  Swainson knows this segment very well and is clearly attacking his old friends head on with this purchase.  Dick Williams – the CEO of Wily – is also ex-IBM – showing a little more of the legacy that IBM has created in the IT Management market segment.

The VC investors – including Greylock, Accel, and Focus – appear to have had a very successful investment as the amount of capital that Wily has disclosed that they’ve raised is around $40 million.  Finally, Dick Williams last company was Quokka Sports – an Internet boom and bust company that dissolved into dust.  Once again, the entrepreneurial mantra of “step back up to the plate and keep trying” plays out nicely.