Saturday, December 04, 2004

More on Netegrity acquisition

Computer Associates just completed its takeover of Netegrity - in just over a month after the takeover announcement. This is one of the fastest transactions I have seen among my hits - the speed, combined with the fact that this was an all-cash takeover makes this the most desirable kind of acquisition. You have dead money for a very short duration.

I have not studied CA's past takeovers, but if this is the speed at which they move, going after CA's possible targets will be a very fruitful strategy.

CA seems to go after small companies with a guaranteed (via license/maintenance fees) revenue flow and a larger customer base and whose products have atleast a slight overlap with CA's existing products. The overlap implies that CA can move these customers to its existing (and more expensive ?) products slowly. Cost-cutting at the acquired company also ensures that the new revenue adds directly to CA's finances.

With the above in mind, I see Quest Software (QSFT) as the next target for CA. I have used a few Quest products myself and I think they are worth acquiring from CA's standpoint. But at its current price, Quest is very expensive - I will wait for atleast a 30% pullback before I buy its shares.

Companies like Visual Networks (VNWK) and Entrust (ENTU) also seem likely targets though their customer base is much smaller than that of Quest. I own Visual Networks and Entrust shares and am buying at current prices. Compuater Associates is not the only potential buyer of these 2 companies.


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