BMC to purchase BladeLogic for $800 million

On Monday, BMC Software said that it had agreed to purchase BladeLogic, a provider of next generation data center automation software, for $28 per share which translates to approximately an $800 million cash acquisition. And according to BMC, once the acquisition is complete, the company expects to add a significant, high growth revenue stream which should accelerate BMC’s long-term growth expectations for revenues, earnings and cash flow.

“Organizations around the world will spend more than $140 billion dollars this year running data centers,” said Bob Beauchamp, BMC’s president and chief executive officer. “Automation is the only way IT can bring this spending under control and still meet the reliability and time-to-market requirements of their businesses. BMC’s acquisition of BladeLogic will create the new IT Service Automation leader, unique in its ability to provide these critical capabilities. It is a natural and very significant next step in our vision of Business Service Management.”

In September, BladeLogic was named the fastest growing data center automation vendor in 2006, based on its revenue growth. Analyst firm IDC said the company had year-over-year revenue growth of 105.6% in the 2006 calendar year. In Q4 of 2007, the company reported a revenue increase of 82% over Q4 the previous year. BladeLogic attributed their success to the company’s demonstrable value and competitive advantage of their next-generation product architecture as evidenced by their large and growing base of customers across nearly every vertical industry.

BladeLogic’s automation software helps IT organizations manage, control and enforce configuration changes in today’s data center. Its products are key in provisioning machines in a virtual, Data Center 2.0 world. And as configuration management continues to heat up, there aren’t a lot of standalone players left in the market. BMC rival Hewlett Packard recently acquired another data center automation vendor, Opsware, with a $1.6 billion price tag last year. Doing so put BladeLogic at the top of the acquisition list.

According to Timothy Stammers, Senior Analyst at Ovum, “HP paid a whacking $1.6bn cash for OpsWare, which at the time was growing fast and had reached around $150m run-rate annual revenue. That makes a multiple of over ten times revenue. BladeLogic is also growing fast, and saw revenue more than double last year, to reach $71m, meaning that BMC also paid over ten times revenue to acquire the company.”

Stammers added, “Those multiples for fast growing young companies are not unusual, but they do show how much both HP and BMC wanted to own OpsWare and BladeLogic respectively. Relatively, it’s a much bigger bet for BMC, because it is so much smaller than HP.”

BMC said the acquisition would fit into its business service management portfolio and it comes on the heels of acquiring ProactiveNet, a maker of service analytics technologies that offers an “early warning system”, and RealOps, an IT task automation and runbook specialist.

The key with all of these acquisitions will be to see how well they can integrate with each other. Beauchamp said that the redundancy between the companies’ portfolios is minimal, and they expect to quickly offer customer-proven product integration.

Stammers said, “One threat to its future BladeLogic-driven revenues will be the development of provisioning tools from virtualisation suppliers such as VMware or Microsoft. BMC is banking on those suppliers leaving the management of heterogeneous physical and virtual servers to third parties such as itself. It is not a certainty, but it is a very reasonable bet.”

But I wouldn’t count on Microsoft to live up to that expectation. VMware and its VirtualCenter management product will probably remain homogeneous for some time, but Microsoft has already said that its management platform would manage Microsoft virtualization technology as well as VMware ESX Server and Xen. Consumers are asking for heterogeneity support, and BMC won’t be the only company answering the call.