Update: HP's Mercury Acquisition Wins Kudos From VARs, Analysts

Hewlett-Packard's $4.5 billion deal to buy Mercury Interactive

Mercury sells enterprise network management software that spans disciplines like project and portfolio management, IT governance and compliance, and network life-cycle management. The deal to buy Mercury, unveiled late Tuesday, will give HP an expanded share of the enterprise software market and an added edge against rival enterprise network management vendors such as IBM, CA and BMC Software, solution providers and analysts said.

The deal, which HP expects to close by the year's end, also will give some solution providers looking to sell Mercury's products a better partner to work with--namely HP.

The products sold by Mountain View, Calif.-based Mercury are top-notch, but Mercury has been an inconsistent partner, said Brian Griffin, director of business development and strategic planning at Definitive Solutions. The Cincinnati-based solution provider had sold Mercury products for a while but then stopped after Mercury too often allowed deals that Definitive had originated to be stolen by other partners, he said.

"We had projects cannibalized by Mercury partners who were bigger than us," Griffin said. He welcomed HP's move to acquire Mercury, since Definitive aims to increase its business with HP. "I hope for all the best because HP is very innovative," he said.

Chris Lochhead, chief marketing officer at Mercury, said Mercury has always tried its best to protect all its partners, but that ultimately it is the customer who decides who they wish to work with. Mercury has hundreds of solution provider partners worldwide, he said, adding that because Mercury is in the process of revamping some of its earnings statements, he could not break out the vendor's percentage of direct versus indirect sales.

Having Mercury will eventually push HP's software group revenue over the $2 billion mark annually, according to Palo Alto, Calif.-based HP.

HP's goal is to grow its software group's revenue to $7 billion over the next five years, said a long-time HP OpenView solution provider. "This is a very big opportunity for HP, and Mercury adds a nice layer to the current OpenView portfolio," said the solution provider, who requested anonymity. "HP wants to grow its software business from $1 billion to $7 billion over the next five years, and in order to do that, they have to kick butt. One way they are going to do that is by consolidating the marketplace through acquisitions."

Mercury's product portfolio complements that of HP's, and with little overlap, Ann Livermore, executive vice president of HP's Technology Solutions Group, told CRN. But HP is still learning some things about Mercury's channel operations and how they will be combined with those of HP's, she said.

"Our sales teams and channel teams are just starting to go through the specifics," Livermore said. "We want to use [the Mercury deal] as an opportunity to get broader coverage," she added.

The deal should be a big win for HP customers because it will further advance HP's "cradle to grave" network management ambitions, according to analyst Richard Ptak of research firm Ptak, Noel and Associates.

"HP customers will be comforted by the extension to HP's product solution set," Ptak said in a statement. "They can confidently look to HP integrating and extending software life-cycle management from development through deployment and from nitty-gritty operations tasks to rarefied governance strategies. Not a bad message." HP's Mercury acquisition will put extra pressure on IBM, which shares HP's cradle-to-grave solution aspirations, added Ptak.

Al Nugent, CTO of CA, Islandia, N.Y., said Mercury was a "good acquisition for HP." But he said the tools HP will obtain in the deal will still leave it with work to do in competing against CA and IBM in the enterprise network management market.

Livermore said HP would apply what it learned from its mega-merger with Compaq to the integration of Mercury into the company. "One of the things we learned during the Compaq merger is, make your choices quickly and stick with them. The things we learned about the product road map are easier this time because there's no overlap," she said.