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Computer Associates buys Niku for US$350 million

Computer Associates buys Niku for US$350 million

Computer Associates International (CA) has agreed to buy Niku, an IT management and governance software company, for around US$350 million in cash, the companies announced Thursday.

CA's relationship with Niku began in January, when it signed a deal to resell, service and support Niku's Clarity IT-MG software. This software helps managers evaluate investments and measure the results of projects, according to CA.

Niku's president and chief executive officer, Joshua Pickus, will become a senior vice president of CA's Business Service Optimization (BSO) unit. CA expects most of Niku's other 290 employees to remain with the company, which will be merged into the BSO unit, it said. Clarity will be incorporated into CA's Unicenter product line.

CA will pay US$21 per share for Niku, and expects to see returns on its investment in 2007. The deal will close in about three months, subject to the approval of regulators and Niku shareholders. Niku is based in Redwood City, California, while CA is in Islandia, New York.

"Niku will operate much as it does today once the acquisition is complete," CA Chief Operating Officer Jeff Clarke said on a conference call with analysts. CA's goal is to slot Niku's technology into its own portfolio with minimal disruption; Clarke said CA expects Niku's sales growth to continue at or accelerate from its current pace.

CA's stated goal for acquisitions is to buy technologies that are complementary to its core focus areas, security and systems management, and which can quickly deliver financial returns. Eight-year-old Niku reported net income of US$4 million on revenue of US$66.3 million in its last fiscal year, ended Jan. 31. CA is paying $21 per share for Niku, a 27 percent premium over the stock's closing price Wednesday on the Nasdaq exchange. Clarke defended that premium by pointing to the Niku's strong growth potential and compelling technology.

Niku customer Janette McKenna, chief of IT internal services for Oakland County, Michigan, said her initial reaction is that CA sounds like a good home for Niku.

"The press release we saw looked very positive," McKenna said. "CA says they'll support and move forward with the tools. We're making an assumption right now that, as the press release said, it's business as usual."

Oakland County uses Clarity and other Niku applications to centralize management of its technology projects for more than 80 government divisions. McKenna's group isn't currently a CA customer, but it's considering becoming one: It is evaluating IT service request management software, and CA's Unicenter Service Desk is among the products on McKenna's list.

"One of the pieces we're looking at is integration with our Niku suite," McKenna said.

CA's Clarke said the two companies already have one joint customer working on integrating their technology: the Commonwealth of Massachusetts. The government wanted a unified system for handling IT project requests, planning and delivery, and elected to blend several Unicenter modules with Niku's Clarity. CA is also a Niku customer, Clarke said.

AMR Research analyst Dennis Gaughan sees Niku as a perfect fit for CA. "When they announced the partnership [in January], I said, 'Why don't you just acquire them?'" he said. "It will certainly help CA remain competitive with the likes of IBM and Compuware and Mercury."

He also expects the deal to be an advantageous one for Niku customers, who gain stability by having a larger vendor committed to their technology. CA developed a reputation in the 1990s for buying technologies solely to put them out to pasture and collect maintenance revenue. But under the new management team that took over in the wake of CA's accounting scandal, the company is showing a fresh commitment to buying technologies that fill critical gaps toward its goal of offering a complete set of IT management capabilities, according to Gaughan.


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