CA buys Wily for $375M in cash

CEO John Swainson called Wily 'the best player in the marketplace'

Computer Associates International Inc. has agreed to buy application management software vendor Wily Technology Inc. for $375 million in cash, the companies announced today.

Wily's software monitors the performance of applications and lets IT managers diagnose bottlenecks and other problems. CA said the acquisition will extend its own lineup 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's executive vice president of technology strategy and chief technology architect. "We looked into the market over the past year," he said in an interview. "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 Corp.'s Exchange groupware and SAP AG's enterprise applications, to custom applications built around Sun Microsystems Inc.'s J2EE, Barrenechea said.

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

CA CEO John Swainson agreed. 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 our 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 (ESM) business unit. Wily's CEO, 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, Calif.; CA is in Islandia, N.Y.

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.

"There's a very, very small amount of overlap of all components" from CA and Wily, said Al Nugent, CA senior vice president and general manager of ESM. The overlap is mostly in relation to CA's 2003 acquisition of Adjoin Solutions, a Web services management vendor, he said.

With Wily, CA plans to use the same approach it took when it added Niku to its Business Service Optimization (BSO) group -- a deal CA announced in June, according to Nugent. "We'll run it [Wily] as a separate business and hopefully maintain its focus," he said. As a division of CA's ESM business, Wily will be called the Wily Technology division. CA will also, as it has in past acquisitions, retain the acquired firm's brand names, so the Wily Introscope product name will continue, Barrenechea said.

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

"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 darndest to let great talent flourish," he said.

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 companies and government organizations around the world, CA said. Those customers include DaimlerChrysler, Starwood, British Airways, Honda Motor, Cingular, Barclays Bank and others across 30 to 35 countries, according to Mike Malloy, Wily's senior vice president of marketing.

CA said the deal will reduce its earnings per share in its 2006 fiscal year but have no impact in fiscal 2007.

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 Inc., Sun, Oracle Corp. 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 customers and open doors to more potential users, since CA's sales force numbers about 2,500 people while Wily has 30 salespeople, Malloy said.

CA is currently on an acquisition roll; Barrenechea estimates that the company has spent upward of $1.6 billion on purchases, including deals for 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," Barrenechea 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, said IDC's Elliot.

"[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, of the IDG News Service, contributed to this report.

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