Broadcom Set to Purchase CA Technologies for Close to $19 Billion

If you've been paying attention the past couple of days you no doubt will have heard that Broadcom, heretofore known for their semiconductors, has made a bid to acquire CA Technologies. I've been expecting something to happen ever since the rumors of a merger with BMC were rampant about a year ago.

Broadcom is offering an all cash deal for CA, but many analysts and customers of both companies are questioning the synergy of the deal.

The general thinking, at least what I have seen in the news, is that Broadcom acquiring CA is "illogical." And I can see that point-of-view. Although Broadcom and CA are both ostensibly in the technology market, CA is in the enterprise software space, a completely different part of the technology industry than the semiconductor and components space occupied by Broadcom. 

The other aspect of this acquisition focuses on CA, which has been in a bit of a slump. Its stock price has pinged between the mid-20s to the mid-30s for the past 5 years (until this acquisition was announced). And CA's product portfolio is what it is. If you have ever dealt with CA you kind of know that there is not a lot of new and innovative functionality being added to its products. (To my CA friends, yes, this is a broad generalization and I know that there have been some new things you've been adding, but CA has a reputation of being an acquirer, not an innovator.)

So, yes, this is a difficult acquisition to understand. That said, Broadcom has probably got the cash for it since its attempted acquisition of Qualcomm fell through back in March 2018 (over $100 billion). If Broadcom has a plan for taking advantage of CA’s customer base – high end enterprise accounts – and building out a core of hardware and software, the acquisition could work. The company bought Brocade last year to extend into the mobile and networking connectivity market. If Broadcom uses CA’s assets and expertise to include the mainframe as part of its connectivity business -- and moves to further embrace the cloud and IoT -- the acquisition could make sense in the long term. 

CA's mainframe products make up the bulk of their revenue consisting of $2.2bn in the 2017-2018 financial year. The remainder of its enterprise software garnered $1.75bn with $311m in services revenue. So the big nut in this acquisition is the mainframe solutions. What will Broadcom do with them? How will they fit into the overall company and strategy for Broadcom? Are there plans to spin off just the mainframe business so it can operate more nimbly? Note to Broadcom: if you plan to do this call me! You should call the spinoff Platinum Technology, inc.

But who knows? My initial reaction was “that’s strange,” but after investigating it a bit I guess I can see some rationale for this acquisition.

With all of this on the table, keep in mind that most large acquisitions fail. And the business models of the two companies are wildly different. So there is a lot for Broadcom/CA to overcome.

As an outsider, it’ll be fun to watch this unfold. 

If you are a CA customer, let us know what you think about this. Will it be good or bad for the products? And how are you and your company planning to react?

BMC and CA: Impending Nuptials?

Have you heard the one about BMC Software acquiring CA, Inc.? 

At first glance, to those of us who have been in the business for awhile, that sentence may look odd? Those two have been slugging it out in the mainframe software world for decades now. And to be fair, not just the mainframe world, but also in the distributed world.

But the chatter is out there that this could happen. Read this Reuters article or this Bloomberg article or this one from the Register. 

The general idea is that BMC and its financial backers are working on a deal to take CA private and combine it with BMC. This would indeed be interesting.

The two companies have competing solutions across the board in many areas, which would make the combination challenging... at least in terms of customer satisfaction. First, the new combined entity (BMCA?) would have to identify all of the competing software products (both companies probably already know this, so no big deal). The next steps are the troubling ones. For each case where there are competing offerings they would have to choose to support both (costly in the long run and not sustainable), choose one to sunset (probably making existing customers not very happy), or combine the best of both products (technologically difficult and I know of no concrete examples where this happened successfully post-acquisition). So there is that to deal with.

Nevertheless, a combined BMC and CA would be a very powerful systems software vendor. But it would come into existence when a lot of software offerings are moving into the cloud. This will be on most analyst's lips if this "merger" moves forward. But it is not a big concern to me as there are still a lot of organizations that rely on systems software (from both BMC and CA) that are not going to move it all to the cloud any time soon.

From a DB2 perspective, the two companies have competing products (and solutions) across all the major categories (fast DB2 utilities, performance management, change management, backup/recovery, and catalog visibility). So if this acquisition happens, it is likely that a whole suite of DB2 for z/OS tooling (that has been "out there" for decades) gets completely eliminated. I'd bet on most of the BMC stuff surviving… not just because BMC would be the "acquirer" but because BMC has been paying more attention to their DB2 product line (lately) than CA. Nevertheless, it’d be sad to see some of the old Platinum stuff retired (e.g. Detector).

The DB2 tools are one component, but not the biggest. Think job scheduling and workload automation, for example. CA has the CA7 and AutoSys product lines for mainframe and distributed; BMC has Control-M. What happens to consolidate these products is anybody's guess?

Two areas without a lot of cross over in the two companies portfolios are help desk and release management. CA probably covets BMC’s help desk (Remedy) and BMC probably covets CA’s software release management (Endevor). But the whole DevOps revolution is impacting the ongoing viability of products like Endevor. Now that is not to say that the market for such tools will disappear overnight, but...

At any rate, I think the hassle would be tremendous for customers as the combined company tries to rationalize its product portfolio. If it goes the traditional BMC route it keeps both sets of products at least for some time; the CA route it lets all products sort of die by attrition over time. The best case scenario would that that a ruthless product-customer-focused view be deployed so that winners in each category are determined with a reasonable conversion plan for customers to switch to whatever wins. I’d be surprised if that happened because in my experience “reason” rarely prevails with an acquisition.

Also, and this is not a minor concern, I’m not sure that this would pass the regulatory anti-trust requirements, but who knows?

I would think that discounting would not be as great in a post-acquisition market because prospects will no longer be able to play one vendor against another. IBM could become more of a viable choice for competing system management software.

What do you think? Should BMC and CA combine together? How would it impact your company if they did?