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Riding the Wave

Joe McKendrick January 2006

Over the past two years, many carriers, either to their dismay or bewilderment, saw key software vendors fall under new ownership. And it hasn't been simply a case of small fish being eaten by larger fish. Some of the largest names in the software business have been caught in the net. PeopleSoft and Siebel Systems, giants in their markets, for instance, were scooped up in acquisitions.

Mergers and acquisitions are always sprung on the market by surprise, and it's difficult to predict or sense when a change in ownership may be pending. What's certain is that such market moves can disrupt even the most meticulously laid plans of IT executives.

The recent rash of acquisitions and mergers reads like a Who's Who of the software industry. Oracle Corp. has been grabbing the most headlines lately, scooping up Siebel Systems to build its customer relationship management (CRM) portfolio. Prior to that, PeopleSoft, an enterprise software vendor, which had bought out JD Edwards, was also acquired by Oracle.

Symantec, the computer security provider, merged with Veritas, a storage management vendor. IBM took the reigns of DWL. Enterprise software provider SSA Global Technologies acquired Epiphany, a CRM system vendor. And Attachmate, a provider of legacy system access tools, merged with WRQ, its fiercest competitor.

Past consolidations are still being digested as well. HP, which swallowed Compaq whole in 2003, continued to feel the ramifications for some time, which included the resignation of HP's CEO. Compaq itself was still wrestling with technology acquired through its acquisitions of Digital Equipment and Tandem Computers.

While grabbing fewer headlines, vendors specializing in the insurance space have been doing their own share of changing ownership hands.

Plano, Texas-based IT services provider Perot Systems, for example, recently acquired Technical Management and its subsidiary, Transaction Applications Group, which provides back-office administrative support to life, health and annuity companies.

EMC Corp., a Hopkinton, Mass-based storage management provider, is acquiring Captiva Software, which provides tools that convert paper-based documents into digital formats. Jersey City, N.J.-based ISO, acquired eLIENS (a business unit of Xtria LLC), which provides lien holder and mortgage notification services for insurance carriers. Brookfield, Wis.-based Fiserv Inc. acquired Interactive Technologies, a provider of fee management and billing software.

Unanswered Questions

Some industry analysts see the recent merger and acquisition wave as the result of the confluence of two trends: the growing commoditization and standardization of software, and an increasing trend toward narrowing the range of relationships maintained by customers.

"The IT industry is undergoing massive restructuring and consolidation in all segments. Much of this consolidation is driven by vendor strategies, focused on positioning for the shift to the next generation of IT," says Frank Gens, senior vice president with IDC, a Framingham, Mass.-based research and advisory firm.

"But the massive consolidation we are witnessing is not just about major vendors reshaping their strategies and offerings. It is also about customers shifting strategies for managing their increasingly strategic relationships with IT suppliers."

Meanwhile, end users that have been relying on an acquired or merged vendor's products for critical business functions are often left with unanswered questions:

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