Who wants CA?

CA has somehow avoided being acquired over the years.

CA Technologies, formally known as Computer Associates International, is one of the oldest independent software companies. It was started in 1976 and been public since the early 1990s.

Nevertheless, it remains somewhat of an enigma and has avoided being acquired over the years.

Earlier this year BMC Software, now a privately-owned company since it was acquired by private equity groups in 2013, is the latest organisation to examine such a move. It would have created the world’s eighth largest software company; but BMC ended merger talks earlier this year after struggling to raise financing for the deal. So what are the concerns of potential investors and/or buyers and what is CA’s future?

CA’s software is utilised by the majority of the Fortune Global 500 companies, government organisations, educational institutions and thousands of other companies worldwide across diverse industries. Its current market capitalisation is about $13.5-billion and has annual revenues of about $4-billion, two-thirds of which come from its US operations. This figure is similar to that which it had in 1997. It's a profitable company and paying dividends, but its profit level is not increasing. While its stock price is moving upwards, it is only approaching the levels it previously enjoyed in the 1990s.

Mixed picture

CA’s history is a chequered one. Users in the 1990s became dissatisfied following acquisitions which were thought would lock them in to a single vendor. A lawsuit by EDS followed in 1992 over an alleged breach of contract, after which a revenue recognition scandal broke in the early 2000s which saw several senior executives jailed. It also has a mixed history in the channel by sometimes leaning on direct sales to win partner loyalty.

The company has also been very acquisitive, racking up more than 200 acquisitions over its lifetime, including Applied Data Research, ASK, Cheyenne Software, Cullinet, Legent, Platinum Technology, Sterling Software and Uccel. Many of these acquisitions were seen as niche products that users of legacy systems were likely to find useful, but it's been some time since CA has had a big hit. It's therefore hard to see how the company will excite shareholders seeking big returns, especially given the cloud's potential to accelerate redevelopment and re-platforming of old code.

CA is in many ways similar to BMC; both have long focused on those which develop and maintain complex applications - generally on old-school platforms - and both are now chasing the new generation of developers. Combining the companies would reduce overlap, concentrate the market for their management tools and perhaps give investors something to be more excited about.

However, there are several concerns that may point to the failure of the BMC deal. They include:
•    The mainframe orientation of CA, which some might conclude is too high;
•    The lack of significant services revenues (less than 10% of total revenues);
•    The 25% ownership that is with the family of Walter Haefner (Careal Holding AG). He was a Swiss businessman who died in 2002 and was then the oldest billionaire in the world and one of the world's top 150 richest people; and,
•    Anti-trust laws and considerations that have previously manifested themselves with regards to some of its prior acquisitions, such as that of Sterling Software.

The future? It’s going to take a brave organisation and one that isn't frightened to make drastic changes and, of course, be prepared to spend at least $15-billion making the acquisition and maybe expending even more doing the necessary surgery.

Nevertheless it is recognised as a leader by Gartner in several Magic Quadrants and was named by Forbes magazine as one of America’s Best Employers for 2017.

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