The speed with which Symantec gobbled up acquisitions in 2004 was already fast enough to give it indigestion. That was even before the surprise announcement that the security giant would merge with Veritas, a storage software company of similar size. But has Symantec finally bitten off more than it can chew?
Analysts and investors have mixed feelings about the deal. Symantec’s stock price took a battering immediatey after the deal, which is expected to close by mid-2005, was announced.
In part, Microsoft’s plans to release its own anti-virus and anti-spyware products have jangled investor’s nerves. Microsoft has a good track record of putting rivals out of business when it wades into a new market. The Veritas deal will give Symantec better access to enterprise customers – access it has long sought – currently out of Microsoft’s reach.
Veritas, too, is looking to put distance between itself and its competitors. Storage costs are falling almost as quickly as customers’ requirements are rising. Hardware vendor EMC’s purchases of Legato and Documentum have brought it right into Veritas’ territory.
In theory, by joining forces, the combined firm can offer a broad product set that the direct competitors cannot match. But defensive moves are insufficient grounds for a $13.5 billion deal.
John Thompson, who will continue as CEO, says it is will achieve more than economies of scale: “This is about two market leading companies coming together with very compatible go-tomarket strategies with limited to no overlap in strategic operations, product lines or research and development.” This, he says, will also remove many of the integration problems which typically plague large mergers.
But Meta Group analyst Tom Scholtz doubts Thompson’s claims that customers are clamouring for such a merger as their security and storage management concerns collide. “Some of the leading-edge, trend setting corporations have IT people that are pushing the envelope in process formalisation and they probably started pushing this kind of debate. But the bulk of organisations have not thought that far ahead yet.” The need to buy backup and antivirus – the two companies’ main sources of revenue – from the same vendor is not immediately obvious. But there are other areas of better overlap. Veritas’s acquisition of KVS, an email archiving specialist, in September 2004, complements Symantec’s June purchase of spam filtering company Brightmail, making a comprehensive email management bundle.
Where the alliance shows real promise is in the area of compliance, says Scholtz. While Symantec has struggled to establish its enterprise credentials after years of consumer focus, the combination of security and storage players makes sense as a form of “information integrity”. “In terms of their fundamental strategy [the deal] certainly makes sense,” says Scholtz.
Gary Bloom, currently Veritas CEO and soon to be president and vice chairman of Symantec, outlines his vision for further synergies: “Threats detected out on the Internet would automatically raise the service level requirements on mission-critical applications. In response to a virus outbreak inside the company, systems would be restored in an automated fashion, accelerating the time to recover.”
Gartner analysts note that development or acquisition of workflow, helpdesk and additional dashboard elements will be required to fully deliver Symantec’s vision of data integrity. Nevertheless, through sheer bulk Symantec has now joined the software superleague. With estimated revenues of $5 billion in the next fiscal year, Symantec will now be the fourth largest software company in the world.
“We’re seeing the re-emergence of a number of monoliths in this [management] space again,” says Scholtz. “Computer Associates and IBM need to take notice – there’s another gorilla moving into their block.” But keeping up with them will be difficult if Symantec does not convince vendors to develop applications for its platform in the same way they do for IBM and HP.
This union has tremendous potential to be happy and fulfilling for both companies and, in time, their customers. But if they are to prove to the many doubters that cross-market marriages can run smooth, much will depend on Symantec’s ability to digest its latest meal. While Symantec is not alone in taking on huge mergers, historically, the task of combining code sets and cultures has put off many software makers from even attempting it.