Getting it together

HP and Peregrine to meld their technologies through acquisition

Hewlett-Packard plans to acquire Peregrine Systems for $425 million, a move that would bring new technological capabilities to HP but would create uncertainty for Peregrine's government customers.

HP, which announced the acquisition agreement Sept. 19, would inherit Peregrine's flagship asset management and service management products. Peregrine's AssetCenter monitors hardware and software by maintaining data on asset location, user access and product licenses. ServiceCenter monitors an IT shop's performance and compliance through service-level agreements.

The deal would give HP an integrated suite of software for managing IT organizations. Todd DeLaughter, vice president and general manager of HP's Management Software Business, acknowledged that asset management has been among the larger gaps in OpenView, HP's systems management portfolio.

HP would integrate some Peregrine technologies into OpenView and absorb the Peregrine brand under the OpenView label once the deal closes, he said.

DeLaughter said HP expects to "use capabilities from Peregrine as part of expanding OpenView's reach into this [government] market." He noted that HP has assigned OpenView software sales representatives to focus on the federal market.

Peregrine has been working to regain momentum in the government market since emerging from bankruptcy in 2003. In the past year, the company's government customers include the Army's Fort Sam Houston, the Army Environmental Center, the state of Montana and New Jersey's Department of Treasury.

Companies to map integration

If the plan for OpenView is clear, the future is still murky for many Peregrine customers. DeLaughter said HP and Peregrine employees will devise a road map for merging their technologies in future releases.

Patricia Adams, a senior analyst at Gartner Research, predicted that HP will complete the road map about six months after the acquisition. HP said the sale will close no later than the first quarter of 2006.

"For the next nine months or so, customers are going to face a lot of decisions about doing version upgrades or making product purchases," Adams said. "In some respects, the market is going to be very much in turmoil until the road map is clear."

That lack of clarity, she added, could send business to BMC Software or Computer Associates International. Both companies are active in the asset and service management businesses. However, DeLaughter said HP will protect customers' investments and support existing ServiceCenter products and those in development.

ServiceCenter is the focal point of the uncertainty, Adams said. It has more installations than HP's Service Desk, but HP has been investing significantly in its own product, Adams said.

She said HP would "want to take some components of Service Desk and ServiceCenter and merge them together over the long term."

Deal brings financial stability

Financial viability has been Peregrine's greatest weakness, said Don Casson, chief executive officer at Evergreen Systems, an IT consulting firm and Peregrine business partner.

As the company slid into and then struggled out of bankruptcy protection, its leaders fought to maintain the brand's market credibility. Casson said Peregrine's customers can feel a lot more comfortable in light of the HP deal.

Although HP's Peregrine acquisition could diminish customer choice, Casson emphasized a compensating virtue: the reduction of vendor complexity. The ability to purchase asset and service management tools from a single source makes the customer's contracting work much easier, he said. Many public- and private-sector customers already have business relationships with HP, he added.

Competitors watching closely

BMC hasn't ignored HP's potential product integration issue. Adams said BMC has the largest installed base among service management software providers.

Jim Grant, vice president and general manager of BMC's service management business unit, said he thinks HP should "take a stronger stand on which of the technologies — [ServiceCenter or Service Desk] — will survive." He said melding two overlapping technologies will slow the process of "getting their customers sorted out and on the right technology path for the future."

BMC's service management business, once called Remedy, is based on assets that the company purchased from Peregrine in 2002 as Peregrine was entering bankruptcy. Peregrine bought Remedy, a stand-alone company, for about $1 billion in 2001 and then sold it to BMC for $350 million the next year, according to statements the companies issued at the time.

Grant, who worked for HP before joining Remedy, commended the company for pursuing the Peregrine deal. "What HP has done is admit they need to make a bolder play in this space," he said.

But the acquisition will test HP's integration abilities, Adams said. "HP, overall, has had a lackluster track record for integrating acquisitions," she said. "And that is something that they are going to have to overcome here as well."

Friend or foe?

Peregrine Systems has counted IBM as a partner in both the commercial and federal information technology markets. Will that partnership change when Hewlett-Packard's acquisition of Peregrine concludes?

In June, Peregrine and IBM announced an extension of their strategic alliance in the IT infrastructure management business. The companies said then that they had 600 customers in common. That collaboration will continue after the HP acquisition, a spokesman for IBM's public-sector operations said.

But Patricia Adams, a senior analyst at Gartner Research, said the companies might move apart.

In May, IBM unveiled a new strategic direction regarding IT service management. The company launched software and service offerings, including its Tivoli Change and Configuration Management Database. Peregrine also has a configuration management database, which means that IBM's strategy directly competes with Peregrine's, Adams said.

In addition, IBM Global Services, the company's integration arm, works with BMC Software on Remedy service management installations. IBM Global Services' Web site identifies Peregrine Systems, BMC/Remedy and IBM's Tivoli Software unit as global partners.

— John Moore

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