A leading information technology (IT) management software company, CA Inc. (CA) recently announced that it has acquired a public sector IT consulting firm, Base Technologies. This acquisition is expected to enhance its consulting expertise in virtualization, mainframe and cloud-computing offerings for government agencies and health care providers.
CA did not disclose the financial details of the deal but expects this acquisition to be accretive in the software and IT services market. CA Technologies has a history of serving the U.S public sector for the last 23 years and with this acquisition the company will gain access to all its government customers.
Market research firm IDC expects government spending on IT to grow double-digits, especially in the Asian region in 2011. So the research firm expects government spending to increase 10.7% year over year in 2011 as they are expanding their IT infrastructures and adopting IT solutions across their jurisdictions.
We believe CA, being a major player in the IT sector and with the experience of handling government contracts, will gain a major chunk of this contract.
Moreover, the company has been consistently growing through acquisitions. In August 2010, CA completed the acquisition of Arcot Systems Inc. for a total cash consideration of $ 200.0 million. CA Technologies integrated Arcot’s operations with its Security business, thereby enhancing its security business and gaining access to Arcot’s customer base.
Further, in September 2010, CA acquired Texas-based enterprise software company, Hyperformix Inc. with the intention of integrating the latter’s Hyperformix operations and intellectual properties with its Virtualization and Automation business. With the acquisition, CA Technologies has bolstered its virtualization, automation, assurance and cloud-based portfolios.
Acquisitions are helping CA to diversify its business, enter new markets and generate more business. Specifically, the company has been able to tap the emerging opportunity in the virtualization/cloud computing space, which could help accelerate growth over the next 2-3 years.
The company’s acquisition of the cloud computing company Oblicore Inc. is also an indication that it is trying to utilize the technical knowledge of Oblicore to enter the cloud computing business.
CA is doing well in most of its business segments. We believe that with a revival in the macroeconomic scenario and gradual recovery in IT spending, the company should be able to deliver decent numbers in the upcoming quarters.
However, we are a bit concerned about the intense competition in the software and cloud computing space from big players, such as International Business Machines (IBM) and Hewlett-Packard Company (HPQ) as cloud computing is a favorite hot spot for most IT companies.
Currently, CA holds a Zacks #3 Rank, implying a short-term Hold rating.
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