Vision Solutions Acquires HA Rival Lakeview Technology

Published: June 18, 2007

by Timothy Prickett Morgan

Tectonic shifts continue a-pace in what was formerly the quiet land of the OS/400 and i5/OS ecosystem as Vision Solutions, the dominant supplier of high availability software for the System i platform, announced last Wednesday that it has acquired rival Lakeview Technology. Thoma Cressey Bravo, the private equity firm that bought Vision Solutions late last year and then followed it up by acquiring HA rival iTera, is funding the Lakeview Technology acquisition.

Given that Vision Solutions and Lakeview Technology are privately held firms, financial details of the transaction were not disclosed.

You might have noticed that the private equity firm behind these three formerly independent companies has a new name, and that is because Orlando Bravo, the Thoma Cressey partner who founded the equity firm's San Francisco office, is now a named partner.

Scott Crabill, the partner at the firm who is managing these three HA software company acquisitions, said that the reason behind the acquisition of Lakeview is really quiet simple, and he cited statistics I have used when talking about the need to get HA software more commonly used among the i5/OS and OS/400 community. He said that there are about 6,000 customers using some form of HA software among a System i customer user base that is estimated to be in excess of 200,000 unique customers worldwide.

"We're always looking for opportunities to invest capital to support great management teams with world-class technology in growing markets," explained Crabill. "We see the penetration of high availability software increasing rapidly as customers of all sizes deal with more regulation, compliance requirements, and the realities of 24x7 business operations. With the combined strength of Vision, iTera, and Lakeview, Vision has the products, technologies and resources to drive further high availability penetration and provide excellent support to its customers."

HA software is an element in compliance with government regulations in many industries--financial services, telecommunications, and healthcare, just to name three--and it is increasingly important in a virtualized server environment, too. One of the benefits of using virtual servers instead of physical ones is that workloads can be moved around not only inside of a machine, but eventually across physical machines that have shared storage. This is certainly in IBM's plans for its Power6-based System i and System p servers, as we detailed last year and as part of the System p 570 Power6 server launch last month.

As of the end of last year, TCB had invested over $100 million in companies that participate in the System i market, including the Vision and iTera deals as well as investments in software makers JDA Software and Attachmate and System i reseller Sirius Computer Solutions. It is hard to say what TCB paid for Lakeview, but it is safe to bet that this was a fairly large deal, adding to the total investment TCB has made in the System i ecosystem significantly.

According to Nicolaas Vlok, who is president and chief executive officer at Vision Solutions, his company has been in discussions with Lakeview on a possible tie-up for a while, much as had been the case with iTera over the years. Vlok said that he first started talking to Bill Merchantz, Lakeview's founder, president, and CEO, back in April 2000 about a possible merger.

"Ever since then, we have touched base a number of times kicked the idea around," said Vlok, "and I think with the partnership that Vision management created with Thoma, the timing was just right to have this discussion again. This time, we put together a partnership that we have envisioned doing for a very, very long time. We have been working on this, in terms of actual management and integration planning, for the past six weeks, and we are excited because customers will have a broader choice of HA solutions and adjacent products from a single vendor."

There is no question that the backing of private equity from TCB is what is greasing the skids to get such deals done when they could not be accomplished in the past--and this phenomenon is happening in other parts of the System i market, the IT market in general, and in other industries all over the global economy. Big investors who are looking for better returns than they can get in the stock markets of the world are investing in private equity funds, which is making it not only possible or palatable for companies to be acquired or taken private (in some cases), but preferable to going it alone, developing products out of their own profit margins, foregoing opportunities that they cannot afford to chase, or trying to go public to raise capital.

The resulting merger of Vision Solutions, which is headquartered in Irvine, California, but has a large presence in Salt Lake City owing to the iTera acquisition, and Lakeview Technology, which is based in the Chicago suburb of Oakbrook Terrace, Illinois, will create a company with over 6,000 customers worldwide, over 400 employees, and over 400 partners who sell, install, and support the three HA software suites now sold by Vision Solutions: ORION (from Vision), MIMIX (from Lakeview), and iTera HA (from iTera, formerly Echo2).

None of these three HA software suppliers ever disclosed revenue figures to the public, but many years ago, estimates were flying around that the three big HA players--which at the time meant Vision, Lakeview and DataMirror, which a few years back tried a hostile takeover of Vision when it was traded on the Johannesburg Stock Exchange--each had somewhere between $35 million and $40 million in annual revenues. The increased competition in the i5/OS and OS/400 HA market--in large part due to the entry of iTera into the market in the early 2000s--drove down the price of HA software alongside improvements in the price/performance of AS/400, iSeries, and System i servers, which has all had the effect of broadening the market for HA software sales. iTera was never as big as either Vision or Lakeview, but it was growing fast and winning accounts away from these two companies. It would be reasonable to conjecture that the combination of these three HA companies would have sales in the range $90 million to $100 million; heaven only knows what kind of profits the combined firm generates. But clearly, the influx of capital and the elimination of back office and other redundancies among these three firms will make the combined entity more profitable--which explains TCB's interest rather succinctly. While some of the big ERP software players have larger businesses based on the System i, this deal puts Vision Solutions in the driver's seat in the HA market, which drives a lot of system sales for IBM.

This deal does not, by the way, mean that the System i market doesn't have HA alternatives. Maximum Availability has been raising its profile in recent months with its *NoMAX product, DataMirror sells iCluster, Trader's sells an HA product called QUICK EDD/HA, and Bug Busters started selling an entry HA product called Remote Software Facility a year ago. But the Vision Solutions acquisition does bring together the two largest players in the high-end, enterprise HA market with the upstart provider of HA products that were not just becoming increasingly popular among midrange shops, but also some enterprises. (That latter reference was to Echo2 from iTera.)

"The HA landscape is a very dynamic and very vibrant landscape," said Vlok when I asked him if the consolidation of these three vendors into Vision Solutions would have the effect of reducing competition in the System i HA software space. "There are hardware solutions that come into play, which we see more and more in the marketplace. And there are a number of players who address the market opportunity with a lot of innovation and they are worthy competitors."

If consolidation is a rule in maturing markets--and make no mistake, the IT market is rapidly maturing in the wake of the Internet--there is a countervailing force of innovation that always brings out the next big competitor with a new twist on an old idea, which keeps big and established players on their toes. It is amazing that IBM has lasted for eight decades in the computing business, and it will be amazing if Microsoft can last as long, regardless of how dominant it seems today on the desktop and in the data center.

Only by behaving like an upstart as new opportunities come along can a dominant player stay dominant, and Vision Solutions seems inclined to take its remaining and as-yet unborn competition seriously as it sells and supports its three HA software and related product lines and does everything it can to move HA software from a 5 percent to 8 percent penetration of the i5/OS and OS/400 customer base--that last number is being generous by including disaster recovery solutions--to somewhere closer to 30 percent. The main driver to increasing that penetration will be making HA software easier to use and more transparent to end users, and this will take investment dollars that perhaps none of the three vendors individually could afford to dedicate to the job alone.

Vlok said that Vision will continue to develop, market, and support the ORION, MIMIX, and iTera HA products, and that partners who used to sell either ORION or MIMIX will now be encouraged to sell iTera as well to small and medium businesses. The company also told customers and partners in a FAQ that by the end of the third quarter it will have an integrated product roadmap.

Vlok will remain president and CEO of the combined organization, and Alan Arnold, who has been steering Vision's and iTera's technology, will remain chief technology officer. Dan NeVille, one of the founders of iTera who was named executive vice president after Vision bought iTera last year, will be taking over corporate development, while Ed Vesley, who hails from Lakeview, will be the senior vice president of marketing for the combined companies, and Bob Johnson, also from Lakeview, will be the senior vice president of North American sales. Bill Merchantz, who founded Lakeview after leaving IT services company Whittman-Hart, which he also co-founded, plans to retire.

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