BMC looks to build on $1b. Israel investment

Enterprise management company says more local acquisitions are possible.

bmi 88 298 (photo credit: Courtesy)
bmi 88 298
(photo credit: Courtesy)
Having closed its acquisition of Israeli transaction management company Identify Software earlier this month, enterprise management giant BMC Software is looking to build further on the $1 billion it has invested in the country to date. "Our investments here are our largest outside the US," Vice President of BMC Service Management Business Unit Jim Grant told The Jerusalem Post this week. "We continue to look both at expansion opportunities in terms of what we develop here and of course at other Israeli companies as possible acquisition targets." The company first entered Israel in 1999 with a $700 million purchase of New Dimensions and followed that up a year later with its acquisition of OptiSystems for $70m. BMC's latest buyout of Identify for $150m. will form an integral part of the company's new transaction management business, Grant said. "Identify has the technology which helps an organization immediately diagnose what the technical issue is that's causing an online transaction failure," he explained. "We are actually forming our entire transaction management strategy around Identify." Grant added that the company has other technology in this area, developed mainly at its Tel Hai facility, which it is joining with the Identify Group to create a suite of transaction management products available from BMC, where all of those products will come from Israel. This will add to Israel's contribution to BMC's product line, which BMC Israel General Manager Zehava Simon said has grown to account for 12 to 13 percent of the company's total revenues. More consistency please For its fiscal 2006 third quarter, BMC had revenues of $380m., compared to $387m. in the parallel period of fiscal 2005. Net income grew to $64m., from $50m. The company is scheduled to release its fourth quarter and year-end results on June 7. Kevin Buttigieg, an analyst at A.G. Edwards & Sons Inc., who does not own any BMC stock and has a "hold" rating on the shares, said that while BMC had a good quarter last year, he would like to see more consistency from it. "The mainframe business continues to be a drag on the company," Buttigieg said. "I would like to see stabilization in the mainframe business, or a better performance out of the service management business on a more consistent basis." BMC's Grant said that while the company has not had significant growth, it has been offsetting some deformation in the mainframe market with some fairly rapid growth in the rest of our portfolio. "We've maintained relatively flat top line revenues, but what we've done is grow the service management parts of our portfolio in the last three years and have added almost $500m. to the BMC portfolio," he said. "The overall growth of the market has been fairly damp since 2000 but it's beginning to pick up again." Buttigieg explained that while the mainframe market is not a growth market it is still a substantial provider of maintenance revenues and cash flows. "It's not an area that BMC is looking to divest from, but it's not one that will be generating much growth either. Business service management is what they envision as generating growth for them," he said. Mainframe talent Despite the slump in the mainframe market, BMC's investment in Israel has been geared to leverage the mainframe software development talent that exits here. "Our R&D centers in Israel are involved in the production of mainframe software products, as well as distributed Unix and Windows software products, which is quite unique," Grant said. "Our Tel Aviv facility is particularly important because the mainframe talent and technology that we have there, is not easily found around the world." BMC Israel's Simon added that BMC also started a mainframe group at its facility in Tel Hai about a year ago and that it is cooperating and funding programs at Tel Hai Academic College to train and develop and educate on mainframe technology. Refocus on BSM Grant stressed that the combination of activity in mainframe and Unix and Windows software product development fits well into the overall corporate strategy of BMC which it termed Business Service Management (BSM) three years ago. BSM redefines enterprise management by managing technology from a business perspective, rather than from an IT organization angle, aligning IT resources with key business objectives. "The business managers around the world are becoming much more involved in how the IT dollar is spent and that's a key trend for a company like BMC," Grant said. "We see IT organizations reducing the number of vendors they have, and we're seeing many corporations around the world creating greater longer term partnerships with a smaller set of vendors." A trend, which Simon says, is as prevalent in Israel as anywhere else. BMC formed a partnership with Matrix for selling in Israel and has an original equipment manufacturers agreement with Comverse. However, it's in the development arena that the company is most focusing its Israeli attention, through its two facilities in Tel Hai and Tel Aviv and with the Identify purchase, which brings its local employee base to 500. "We don't see any horizon on our Israeli investment at all," Grant said. "We've had tremendous success with the organizations here and the products they produce and the great technology environment that exists in Israel." Grant was in Israel with other BMC executives, including CEO Bob Beauchamp, as part of the company's global "kick off" of fiscal year 2007 on April 1.