What an interesting few weeks with VM Ware, CA and this week HP picking security vendors continuing the M&A spree of the last few months in the enterprise security arena. On top of that more rumors about additional moves (did someone say Novell?). Definitely exciting times…This time I decided to talk about the HP-ArcSight move.
The acquisition of ArcSight was not a surprise, rumors and speculations about a big fish moving on ArcSight has been around for a while (at least a month). However, at least I was surprised by the taker and by the price – HP and for a value of $1.5B, roughly 70% more than the value of the company just 30 days before.
About the taker: About 6 years ago HP decided to get into the Identity Management space and establish themselves as an enterprise security leader. They built a strategy and executed several M&As (all of that investment is dwarfed by the ArcSight one but nonetheless). The business did not take off as HP hopped and about two years ago they decided that it is time to depart from this market segment. I liked what Forrester wrote at the time in the Forrester Wave™: Identity And Access Management, Q1 2008: “HP reported that it has decided to focus its investment in identity management products exclusively on existing customers and not on pursuing additional customers or market share”.
At least on the surface, the ArcSight acquisition looks like a return to the enterprise security market after exiting it just couple of years ago. Hence the surprise about the taker.
About the price: This buy is also placed on the high side of the price range when compared to the revenue and profit ArcSight did last year and expected to do this year. High ratios between price and fundamentals are acceptable when dealing in acquisitions of smaller and sometimes hyped companies (e.g. in the x-as-a-service market). ArcSight does not seem to meet this profile. It is a solid company with a solid on-premise product deployed at large enterprises. Not the exact small startup company any more. On the flip side, ArcSight did show aggressive year over year growth and if HP can maintain that momentum ArcSight can justify the price in few years. But the price tag still raises questions.
What else drove this acquisition?
From the written briefings so far I am not sure. I do not believe HP will do such a large spend just because it is fashionable to buy security these days (Security Software Grows Increasingly Popular As M&A Target). I do not believe it is the management uncertainty that pushes forward more of an opportunistic approach to M&A. And I do not believe it is just a year over year growth that drove this.
I (choose to) believe that this is a well thought out move on a deal that was in the making for a long time, reviewed and approved by former management and is part of a broader strategy. But I have to admit that I still do not understand the big picture here. I can speculate that this has to do with the titan battles against Oracle and IBM on the enterprise IT spend and that if HP is spending such amounts they believe they can become a leader in the enterprise security market and do it quickly (and if so, more acquisitions may be on the way shortly). The challenge that they will have is that this is a mature market with established players and to the most part a penetrated market so moving beyond the well executed ArcSight SIEM leadership into the broader enterprise security is not trivial.
It will be very interesting to continue and monitor what HP are saying about this and how they build this into their overall enterprise software strategy in years to come.