BMC Software Shells Out 800 Million Bucks for BladeLogic

Published: March 27, 2008

by Timothy Prickett Morgan

Those with the cash can make the big deals now in the IT sector, and intrepid and entrepreneurial companies that might have otherwise been snapped up by competitors backed by private equity firms or just by the firms themselves are now being snapped up by larger IT players. And so it is with BMC Software's acquisition of BladeLogic, a maker of IT operations management software.

BMC, which is probably best known in the midrange for its Patrol line of systems management tools, is betting pretty big on BladeLogic, which was founded in 2001 in Lexington, Massachusetts. To my way of thinking, $800 million is a lot of money to pay for a company with relatively tiny sales and no profits. But, there is little question that the IT management issues that BladeLogic was formed to cope with are big issues in the data centers of the world these days.

Like Opsware (acquired last summer by Hewlett-Packard for $1.6 billion), BladeLogic is trying to help system administrators in the data center do a better job managing the servers and applications that run on them. This is part of the reason why IBM acquired Candle in April 2004 for an undisclosed sum.

And at the time, I said what IBM really needed to do was buy BMC, which had a market capitalization north of $4 billion and which probably would have cost $6 billion cash to buy. As we go to press, BMC has a market cap of $6.4 billion, and with IBM so keen on spending at least $12 billion on its stock this year, Big Blue can't afford to buy BMC. (Which it should have done then, because BMC would be adding $1 a share to profits by now, and maybe more given synergies. But what do I know? I am silly enough to think that if you are going to pay billions of dollars for something, it should be more than a financial engineering of financials figures, but actual products and customers and real profits.) In fiscal 2007 ended in March 2007, BMC had $1.58 billion in sales and brought $215.9 million to the bottom line. To put that into perspective, that is roughly what IBM sells in System i hardware and operating systems in a year--probably not as much profits as IBM pulls out of the System i line, though.

BladeLogic is a public company, albeit a relatively small one that went public last year before the market started to go sour. The company had $62.7 million in sales in fiscal 2007 ended last September, and it very nearly broke even for the first time in its corporate life. The company has lost a cumulative $25.4 million in the past five years against $121.7 million in total sales over that time. In the three months ended in December, its first quarter of fiscal 2008, BladeLogic had sales of $21.5 million and lost $395,000--not quite at breakeven again. This is why BladeLogic's stock was dropping through late 2007 and early 2008, and it is why BMC could snap the firm up for a relatively modest amount of money--a little less than the prevailing stock price before the merger was announced last week.

"Organizations around the world will spend more than $140 billion dollars this year running data centers," explained said Bob Beauchamp, BMC's president and chief executive officer, in talking about the BladeLogic acquisition. "Automation is the only way IT can bring this spending under control and still meet the reliability and time-to-market requirements of their businesses. BMC's acquisition of BladeLogic will create the new IT service automation leader, unique in its ability to provide these critical capabilities. It is a natural and very significant next step in our vision of business service management."

While that statement is a bit like playing buzzword bingo, the fact remains that IT infrastructure is too hard to manage and most shops have yet to automate the IT processes that support the automation of other business processes at the company. This is not just a case of the cobbler's children needing shoes, but also resistance from the IT community itself. The funny thing about human beings is they have to eat and they like to get paid, and IT personnel are no exception in this regard except that they could keep the company looking to automate other parts of the business for decades. Brilliant misdirection, really. But it is over now.

BMC says that it expects to close the BladeLogic deal in the second quarter, and admits that it will hurt earnings a bit until 2010. The company is promising potential customers that the combined BMC-BladeLogic toolset will eventually yield a 90 percent improvement in IT operational efficiency in 90 days--a tall order, indeed.

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