Veritas Takes A Giant Step
Lisa DiCarlo, 12.23.02, 1:57 PM ET
forbes.com
NEW YORK - Veritas Software has big ambitions. The $1.5 billion company is reaching outside its roots as a maker of storage software with the hopes of becoming a $5 billion or even a $10 billion company.
On Dec. 19, Veritas (nasdaq: VRTS) took a big step in that direction by spending $600 million for two software companies. The bigger of the two, Precise Software (nasdaq: PRSE), was had for $537 million and the other, privately held Jareva, for $62 million.
Precise makes software that measures application performance, and provides information on how to squeeze better performance out of business software, including Web servers. Jareva's software aims to help customers make more efficient use of their existing storage assets so they can avoid buying more hardware.
For Veritas, it's the company's first foray into software that is not directly related to storage management. "If we're going to get from where we are today to be a $10 billion company, we've got to take a more complete picture to CIOs," says Jeremy Burton senior vice president and chief marketing officer.
It's no wonder Veritas wants to expand beyond storage software. Veritas is a leader in the space but it's quickly becoming an overcrowded market. On Dec. 18, Merrill Lynch noted in a report the competitive pressures on Veritas, including EMC (nyse: EMC), Network Appliance (nasdaq: NTAP), BMC Software (nyse: BMC) and Legato Systems (nasdaq: LGTO), not to mention large computer companies such as Hewlett-Packard (nyse: HPQ) and IBM (nyse: IBM).
On Dec. 18th, the day before the acquisition news, Merrill said it was expecting an 8% revenue compound annual growth rate through 2006 "due to concerns about slow IT spending and new competition." After the news, the bank raised its 2003 revenue projection to $1.54 billion from $1.52 billion, and left unchanged its earnings-per-share estimate of 57 cents.
Merrill says the acquisitions are "very strategic" to Veritas' vision "as it extends its core business up through the application. This is crucial as data center automation is expected to be one of the next big waves in computing."
Indeed, other analysts are predicting that the application performance management market may more than double to $11 billion by 2006.
If Veritas is to reach its goal of tripling or quadrupling in size, it will make more software acquisitions. Burton says the company expects the Precise acquisition to be accretive to earnings in 12 months.
If all of the acquisitions are as well received as last week's, Veritas should realize its goal of getting more face time with higher-level customers, and a higher profile in the software industry. Says Merrill's John Roy, " Veritas' acquisition of Precise places it squarely on the road to end-to-end application management. Together these technology synergies will raise Veritas' profile with CIOs." |
