CA back on buyout roll
Computer Associates is ready to try Plan B in its highly publicized attempt to enter the lucrative services business.
So now Computer Associates is ready to try Plan B in its highly publicized attempt to enter the lucrative services business, which began in March with a failed attempt to take over Computer Sciences Corporation (CSC).
This time the Islandia, New York-based software firm is going after smaller game. The $4.7 billion CA today bought Realogic, a technology consulting firm based in Cleveland with about $42 million in annual revenue, according to Realogic executives.
"This marks the first in a series of planned acquisitions to broaden the capabilities of CA's Global Professional Services, formed in April in response to increased client demand for turnkey, best-of-class," systems, according to a prepared statement from the firm.
Financial details of the acquisition were not released, but Realogic executives said they were looking at filing an initial public offering at the time talks began with CA two months ago. Realogic President David Snyder also said between five and ten other companies were courting Realogic for acquisition.
Earlier this year, CA attempted to launch a services unit in one fell swoop with the hostile takeover of Computer Sciences Corporation. But CSC board members successfully repelled the $9.8 billion acquisition in a high-profile legal and verbal battle.
"This is Plan B," noted CA chief executive Charles Wang at a CA World '98 press conference in April about the revised attempt to launch a services unit. "Plan A was the acquisition of CSC, which didn't work out.
"We will use the same strategy we have historically used," he added about the acquisition strategy. "Today we are looking at many companies all over the world."
Some analysts said the new strategy seems to be a better fit with CA's plan for a service business than the CSC deal.
"CSC had more of an outsourcing flavor, this has more of an integration and consulting flavor," said Paul Johnston, analyst at International Data Corportation in Framingham, Massachusetts.
Johnston said to expect CA to buy companies similar to Realogic as it attempts to expand its services unit and to expect it to buy some international-based consultants as well as ones with expertise in different technology areas.
Factors in deciding which companies to buy include geography, existing customer base, and service offerings, said Chris Wagner, vice president of CA's GPS division.
While it's no CSC, Realogic does give CA the foundation for a services wing. Realogic specializes in such basic service needs as infrastructure implementation like network design, wireless systems, workgroup systems, e-commerce, and packaged application integration and implementation. Its customers are mostly Fortune 1000 firms including Pacific Gas & Electric, the Gap, Goodyear, and Visa International.
Realogic is to be melded in to the GPS division and Realogic chairman and chief executive Snyder is to head up the new division.
CA's plan is to add 2,000 employees to the new professional services organization by the end of this year, according to Wang. The new division will tackle management outsourcing, application development and integration, and Year 2000 compliance issues, among other services. The company has about 1,000 employees in the division now with another 350 being added with the Realogic purchase.
According to Wagner, Wang has set a bar of $1 billion in revenues for the division. No timeline has been set for reaching that goal but Realogic's Snyder said his company has had a 56 percent to 70 percent growth rate the past three years.