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A Winning Combination: Software-as-Services Plus Business Consulting and Process Services
By Laurie McCabe
January 30, 2004

In a deal that could expand its identity and access management (IAM) portfolio, Computer Associates (Quote, Chart) is buying software security developer Netegrity for $430 million in cash.

In the functionality department, the Netegrity addition is seemingly a win for CA’s eTrust Identity and Access Management (IAM) products, which protect enterprise networks from unauthorized entry.

Netegrity’s flagship software — user administration and access management applications built for Web services (TransactionMinder) and Web-based (IdentityMinder Web Edition) programs — will be rolled into the eTrust group.

IAM is one of three legs of CA’s eTrust tripod of products; the other two are Threat Management (TM) and Security Information Management (SIM). In August, the Islandia, N.Y.-based CA acquired spyware remover PestPatrol for an undisclosed amount of cash and rolled it into its eTrust TM software line.

“What’s beautiful about this acquisition is that our solutions complement each other so well,” said Russ Artzt, CA’s eTrust Solutions executive vice president.

“Netegrity has really been a leader and is the leader in Web security. They have Web services security products, they have the leading product in Web security single sign-on; CA has focused on host access control, IT auditing facilities, legacy single sign-on, directory products. So we’re really very synergistic in our ability to secure the user,” he said during a conference call Wednesday morning.

However, Artzt added, there’s overlap in the two companies’ approach to user provisioning, which will require two development teams to sit down and rationalize the two products. Also, there’s the matter of converting Netegrity’s customer base from the standard license contract to CA’s subscription-based contract model.

Jeff Clarke, COO for CA, said the company will honor the license agreements of current Netegrity customers and transition them to the subscription model when it comes time for renewal.

Netegrity’s systems integration experience was just as important as the technology in CA’s decision to buy the company. Clarke said their go-to-business model is boosted with the addition of that experience into its own sales channel and expects to reap rewards on that front as well as from Netegrity’s applications.

“Effectively, Netegrity has been able to drive $100 million in software business in this very competitive space, primarily through this systems integration and we expect to learn a lot from it and leverage it as well,” he said in the press conference.

Much of the focus on CA these days has been on its operations, not technology. The company is currently embroiled in clearing its name after the “35-day month” scandal, in which executives kept the sales books open long enough to meet financial goals promised to investors.

On Sept. 22, Sanjay Kumar, former CA chairman and CEO, and Stephen Richards, former head of worldwide sales, was indicted by the Department of Justice, the Federal Bureau of Investigations and the U.S. Attorney’s Office, for their involvement in the scandal.

Last week, the company also announced it was cutting 800 employees, or five percent, from the company rolls by the end of October in order to save $70 million a year. Company officials expect the restructuring charges to cost $40 million, with most of it to be paid off in the second quarter of 2005.

Ken Cron, CA’s interim CEO, called the deal “the right acquisition, at the right time, for our company, its customers, and investors.”

During a keynote address at this week’s TechXNY conference and trade show in New York, Cron said the IT industry needs to take a page from the consumer technology industry, where consumers “have very little tolerance for products that fail to deliver functionality, simplicity of use and low cost.”

Too many products and vendors, he continued, creates too much complexity.

Netegrity officials said they expect most of its 400 employees to migrate over to CA when and if the deal is approved by shareholders and regulators in the next 90 days. The buyout is valued at $430 million or $10.75 per fully diluted common share, or $340 million net of cash and marketable securities on Netegrity’s balance sheet.


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