New Rounds of Buyouts and Ventures

CA Technologies Inc. announced the acquisition of privately-held Torokina Networks Inc., a provider of service assurance management solutions, while Cisco Systems, Inc. said that it is acquiring privately-held Pari Networks Inc. for an undisclosed amount. In other news, Verizon Communications Inc. announced that it is purchasing Terremark Worldwide, Inc. for $1.4 billion, and Lenovo Group and NEC Corp. announced a strategic relationship that creates a joint venture and forms the largest PC group in Japan.

Focal Points:

• CA announced that it has purchased Torokina Networks, a small, privately-held Sydney, Australia-based developer and CA channel partner. Torokina Networks provides service assurance management solutions to 3G, 4G, and long-term evolution (LTE) communications service providers worldwide, said CA. Torokina Networks used to include CA's eHealth and Spectrum systems, as well as supporting products from Oblicore, which CA acquired last year, in its consulting services. According to CA, Torokina Networks' staff will become part of CA's Service Assurance business unit following the acquisition. Separately, Cisco announced that it is acquiring privately-held Pari Networks. Pari is a provider of compliance management and network configuration and change management solutions that complement Cisco's smart service capabilities, said Cisco. Based in California, with part of its employee base in Hyderabad, India, all of Pari's employees will come on board as part of the acquisition. Pari's products and services will be integrated into Cisco's Technical Services, Cisco added. Financial terms of the deal were not undisclosed. Cisco expects the acquisition to close before the end of its fiscal 2011 third quarter, which ends in April.
• Verizon announced a definitive agreement to buy infrastructure-as-a-service (IaaS) provider Terremark for $19 a share, or $1.4 billion. Terremark's board unanimously approved the deal, said Verizon. Terremark provides secure cloud computing, colocation, and managed hosting services for large companies and government agencies. Verizon believes the deal will help it enter the cloud computing market, an area where it has been lagging behind competitors. Verizon knows Terremark well, since last year the communications provider signed a deal for 25,000 square feet in Terremark's data centers. Moreover, Verizon started selling Terremark's hosting services. Verizon plans to operate the new unit as a wholly owned subsidiary retaining the Terremark name, and with current management continuing to manage the company. The deal is expected to close late in the first quarter of 2011, Verizon added.
• Lenovo and NEC announced a new joint venture, NEC Lenovo Japan Group, to help both companies grow their commercial and consumer PC businesses in Japan, the third largest PC market in the world. Under NEC Lenovo Japan Group, Lenovo and NEC will establish a new organization called Lenovo NEC Holdings B.V., registered in the Netherlands. According to the agreement, Lenovo will hold a 51-percent stake in the new joint venture, while NEC will hold a 49-percent stake. Lenovo (Japan) Ltd. and NEC Personal Computers. Ltd., a new company formed as a result of separating NEC's PC business from NEC Personal Products, Ltd., will become 100-percent subsidiary companies. The current President of NEC Personal Products Ltd. will become President and CEO of the new joint venture, while the current Representative Director and President of Lenovo (Japan) Ltd. will become Executive Chairman, said the companies. Combining both vendors' operations in Japan will begin immediately, although the deal is expected to close by June 30, 2011, the companies added. During and after the transition, both companies expect existing PC operations, including customer service, product delivery, and warranty fulfillment, to continue as usual. Current product brand names will also continue.

Experton Group believes companies with deep pockets will deplete much of their cash hordes this year to acquire services or software companies so that they can expand their businesses into markets they currently do not serve or serve well. Verizon should be able to leverage the Terremark business aggressively while the ability of CA and Cisco to expand their newly acquired services will be constrained by their ability to hire and train new staff. In this regard, services companies are not as rapidly expandable and leverageable as software firms. The Lenovo/NEC deal reduces costs for both firms, provides some economies of scale, and strengthens market share. IT executives need to be cautious when acquiring services from all providers these days and not assume that they can get the service quality they may expect from a name brand. IT executives need to vet the resumes of the staff they are expecting to use and must ensure that these individuals will be available and put on the project for the duration once the contract is signed.