Update: IBM to buy Candle Corp. for mainframe management

An analyst pegged the price tag on the deal at $350M

IBM announced this morning that it will buy Candle Corp., a well-known mainframe management software vendor with 3,000 customers worldwide.

IBM said in a statement that it plans to use Candle's software to round out its management software offerings for infrastructure and applications as it pushes its "on-demand" strategy.

"Candle brings award-winning infrastructure management expertise and technology to the IBM software portfolio," Steve Mills, senior vice president and group executive of the IBM Software Group, said in the statement. "Together, we will provide customers with powerful capabilities for managing end-to-end infrastructure, processes and applications, which are key requirements for the on-demand operating environment."

El Segundo, Calif.-based Candle has developed an extensive set of infrastructure management products covering a wide range of hardware and software, including IBM's DB2, Lotus, Tivoli and WebSphere software, as well as zSeries, Linux, Unix and Windows platforms.

Financial details about the acquisition weren't disclosed by the companies, but Jean-Pierre Garbani, an analyst at Forrester Research Inc. in Cambridge, Mass., pegged the purchase price at $350 million, a figure he attributed to industry sources. The Candle acquisition will give IBM mainframe management capabilities that will "cause a lot of trouble" for competitors such as Computer Associates International Inc. in Islandia, N.Y., and BMC Software Inc. in Houston, he said.

IBM began adding mainframe management to its Tivoli line two years ago, but the Omegamon product line from Candle is respected and widely used, Garbani said. "Candle has an excellent reputation in the market," he said.

Another analyst, Jasmine Noel, at Ptak, Noel & Associates in Boston, said IBM's goal is to target customers who have bought IBM hardware and software, but not its Tivoli products. "For this strategy to work, it is absolutely critical for IBM to retain all of Candle's customers during the acquisition process," she said.

During a conference call today to discuss the acquisition, Robert LeBlanc, general manager of Tivoli Software, said IBM is committed to supporting the Candle line for customers.

According to Noel, mainframe systems management is a mature and somewhat declining market, although there is still money to be made, so "competition is becoming extremely fierce." She said she would not be surprised if BMC or CA seeks to maintain market share against IBM by buying other established companies, such as Compuware, Horix or ASG.

Executives at both CA and BMC said they have capable product lines already, without a need to acquire other companies.

"I don't think they [IBM and Candle] hold a candle to us," said Fred Johannessen, director of BMC's Mainview product line. He said BMC has managed to replace Candle Omegamon products with BMC Mainview products at 200 companies in the past four years.

CA's Valerie O'Connell, vice president of Unicenter product marketing, said, "It's ironic that IBM has to go out to buy an aging company to beef up its product offering."

The deal is expected to close in the second quarter, IBM said.

Copyright © 2004 IDG Communications, Inc.

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