SYMANTEC-VERITAS MERGER: A New Siamese Twin?

Security major Symantec's recent acquisition of storage software vendor

Veritas for $13.5 billion in stock is unique in many ways. For one, it

officially gives birth to a new Siamese twin in the IT industry-security and

storage conjoined at the hips to perform normal functions as one single entity.

In the deal, Symantec, with its 6,000 employees and annual sales of $1.9

billion, would swallow up Veritas, with its 6,700 employees and $1.8 billion in

sales. Each company has more than $2 billion in cash. Symantec has been growing

by about a third each quarter, Veritas by less than half of that.

Plainly speaking, this acquisition is the culmination of a long process

whereby these two disciplines have been closing on one another for a

considerable time now. Security has been gradually moving from client protection

to more of a network-based approach-evident from the moves of Symantec and

rivals McAfee and Trend Micro to partner networking vendors like Cisco and

Nortel. Meanwhile, storage has become a larger part of the security conversation

as systems that trigger data backup based on threat levels have arrived. In

October, Symantec introduced its LiveState Recovery products. Likewise, CA sells

security and storage as complementary offerings.

Last but not the least, at $13.5 billion, this was literally the mother of

all software deals-it is not only the largest software acquisition ever, but

it has easily dwarfed the much-touted Oracle acquisition of Peoplesoft by more

than $3 billion. More importantly, avers Ambarish Deshpande, Marketing Manager,

Symantec India, "While the Oracle-Peoplesoft deal was a hostile takeover,

Symantec's acquisition of Veritas was very smooth."

What are the benefits being accrued to the new avatar of Symantec post its

gobbling up of Veritas? For starters, by virtue of this acquisition Symantec

joins the big league of enterprise infrastructure vendors like IBM and HP. Given

the size of Veritas, this opens a much larger market for Symantec in the most

convincing manner, making it the undisputed leader in that particular market. In

addition, by combining their product offering, Symantec can engage in matrix

selling-combining products into suites, much like what Microsoft did with

Office in the early years. This makes things difficult for competitors, believes

GM Shenoy, CIO, National Stock Exchange, as most customers, i.e. the CIOs like

him will opt for a set of products that work well together over a bunch of best

of breed from smaller companies that they have to integrate by themselves.

Symantec CEO John Thompson, in a conference call with analysts, explained the

rationale behind the merger. This dichotomy is driving the obvious convergence

between securing the infrastructure and ensuring information availability.

Combining Veritas and Symantec strengthens our ability to serve the needs of

customers with security and availability solutions, thereby securing the

integrity of their most valuable asset-information."

One international analyst believes that the acquisition is good for both

companies for very different reasons. Veritas was clever for looking to add

security to its products, particularly because it didn't have a channel for

security. "They recognized that the security market had some revenue

available and some need for storage or data management."

For Symantec, the deal is in sync with the company's plan to evolve from a

security vendor that sold to consumers and enterprises, to a provider of

information integrity, something the company could not do without data

protection software from Veritas. This maintains or stimulates the enthusiasm

that vendors and customers have about the role of security in the enterprise.

"For Symantec, this helps them tell their new story. If it is correct and

true and worthwhile, then they will make money. If not, they were going to fail

anyway," concludes the said analyst.

The Symantec-Veritas combine noses out rival CA as the fourth-largest

software company in the world behind Microsoft, Oracle and SAP. Both Veritas and

Symantec do about $2 billion a year and together are promising to produce 18%

growth and $5 billion in revenues, 75% from the enterprise side and 25% from the

consumer side. CA does about $3.4 billion.

“Our customers recognize that while the regulatory environment requires increased information security”  -John Thompson, CEO, Symantec on the aquizations of Veritas

Among other things, the combined channel strength of Symantec and Veritas is

going to be a problem for CA, which is now trying to move into the channel in an

effort to prop up its flagging sales. Symantec's immediate problem is to

sidestep Microsoft's anticipated move into anti-virus software, an event

expected to hurt Symantec's flagship Norton anti-virus interests as well as

its competitors McAfee and Trend Micro. No wonder, Deshpande lists Microsoft as

Symantec's main competition in the days to come, besides other biggies like

IBM, HP or even Cisco.

Other than CA, the acquisition might seriously impact the fortunes of EMC.

Currently, Veritas is second only to EMC in storage software and actually ahead

of both EMC and CA in data backup and archiving software as well as file

systems. EMC actually overtook Veritas in the wake of acquisitions of Documentum

and Legato last year. However, with Veritas in its kitty, Symantec now goes into

a different league and could pose a severe threat for EMC since it does not have

any solutions on the security side. EMC however is putting up a brave face-it

is not quite ready to buy into the whole storage and security convergence line

argument and believes that Veritas' primary motivation for the merger is to

stop losing market share in the storage software space. As much as EMC refuses

to recognize the dovetailing of storage and security, most analysts worldwide

believe it is a necessary and an inevitable step companies will take to offer

customers trustworthy gear.

“With the increasing propensity amongst CIOs for one-stop solutions from a single vendor, this might seriously hurt EMC in the near future”  -Vikas Gadre, CiO, Rallis India

It is a natural extension of data protection and data management, especially

when you include the influence of compliance and regulatory issues and the fear

of litigation.

Many in the industry claim that the Symantec-Veritas deal, which mixes

enterprise with desktop DNA, is only a first step for Symantec and it also plans

to acquire other companies, with Mercury Interactive, Compuware and Novell

likely to be in the shopping list and in that order. Mercury would give Symantec

the wherewithal to test and monitor corporate Internet applications and improve

the performance, availability, reliability and scalability of websites.

Compuware, reportedly on the block for maybe $2.3-2.4 billion, would give it the

mainframe software to bury CA and Novell has identity management and SuSe Linux

up its sleeves.

As far as dynamics for India is concerned, Deshpande feels it is too early to

comment. While Veritas' fiscal ends in December, Symantec's would end in

March 2005. Only following that would permission for the acquisition come from

the US Government as well as the Anti-trust board. Subsequent to that, the

organizational and business structure in India would become clear. "As of

now, not even our targets have been modified. However, following the

assimilation, we will also have a distinct and strong enterprise focus. However,

our strong consumer segment would also continue to grow," informs Deshpande.

All of Veritas' existing customers would come into Symantec kitty, though

terms of their services agreement would not change.

Rajneesh De in

Mumbai