Most analysts seem to agree that the rumored acquisition of Veritas Software Corp. by security giant Symantec Corp. is good for both companies from a business perspective, but it is less clear, at this stage, whether the deal makes sense for IT users.
The business argument for the acquisition goes something like this. Both companies are leading providers in their relative markets, but their growth is slowing. In the past few quarters, Veritas has struggled to grow its core Netbackup and Backup Exec products, as this market is saturated. Meanwhile, Symantec leads the desktop security and antivirus consumer market but has less of a presence at the high-end of the corporate world where Veritas is strong. Analysts in the pro-merger camp argue the deal would enable both companies to expand beyond their traditional markets, create new channels and efficiencies of scale, and ultimately compete better.
"It could also be argued, with some justification, that security and data protection are closely related, making this a natural marriage," said David W. Freund, practice leader, information architectures at Illuminata Inc.
The reported bid of $13 billion is a generous offer for Veritas when you look closely at the numbers. Veritas is trading at approximately $25 per share and is expected to make $2.2 billion in revenue next year, excluding cash. That means Symantec is willing to pay roughly five times Veritas' estimated 2005 revenues. "Management couldn't ignore that," said Steve Berg, analyst with Punk, Ziegel & Co. To put the deal in perspective, Oracle, Corp. is paying three times PeopleSoft Inc.'s 2005 revenue estimates -- that deal is valued at $10.3 billion.
Implications for users
The good news is that there is no strategic overlap in their product lines. But that could also be bad news, analysts said. "Combining product lines that don't contain major items that compete head-to-head can save some headaches. Then again, Symantec and Veritas sell very different software, often to different sets of people -- even within the same customer organization," Freund said.
Randy Kerns, analyst with The Evaluator Group, countered that "it means one less vendor for customers to deal with," and could be an incentive to users to bring security and storage under one umbrella -- helping them get more consolidated.
Symantec has already made a start on this front. It acquired Powerquest in December 2003 for its snapshot and recovery software that performs what it calls live-state recovery or point-in-time snapshots of servers and desktops. Symantec released its LiveState Recovery product in October this year.
Analysts point out that Symantec's ability to tie data recovery closely to virus protection and other security features could give it a leg up in the data protection market. Its "event-driven backup," which uses Symantec system management and threat detection services to do automatic backups before potentially hazardous events take place, is a good example. Risky events might be application or patch installation, user login or logout or a change in the amount of data written to disk.
Other bids, partnership conflicts and competitive positioning
Since it's now apparent that Veritas is in play, there's been speculation that other companies may pitch in with a bid. Shebly Seyrafi, analyst at Merrill Lynch, suggested Oracle, IBM, Hitachi Data Systems, EMC Corp. and even Microsoft Corp. might be interested.
Then there's a question over what will happen to Veritas' partnership with Network Appliance should this acquisition go ahead. Symantec and Veritas are both considered neutral providers, in that they work equally with all hardware players. Veritas diverged somewhat from this strategy in its partnership with NetApp. The two firms have automated the process of creating snapshots on NetApp filers through Veritas' Netbackup software. They are also working together on security and compliance integration. "We can't assume Symantec will follow this strategy," said an industry insider familiar with both companies.
Should the deal go ahead, it presents a game changing situation for EMC, which to date has barely mentioned the implications of security on storage. Could it be adding Symantec rival McAfee to its list of possible takeover targets now? And for Veritas and Symantec, the deal lays out a mighty task in terms of integration, a situation that causes huge disruption at any organization and often leads to job losses and brain drain.
Both companies declined to comment on the speculation.