COVID Drives M&A Activity In DevOps And IT Management

Your trusty DevOps Theme Team here! As Forrester analysts, we keep an eye on mergers and acquisitions; it’s part of our job. It’s certainly been an interesting eight months or so since the pandemic hit. A cursory glance shows 25-plus acquisitions in the last eight months in the DevOps and related IT management spaces, and this feels like an elevated pace. In fact, the pandemic has increased uncertainty, and the market (according to the VIX Index) remains volatile relative to historical standards. We think that this volatility is resulting in some attractive bargains, with investors wanting to shift more to cash and with company leaders feeling a desire to be part of larger enterprises.

Therefore, it’s a good time to reflect a little on mergers in software. Growth-by-acquisition software firms are nothing new. The industry ecosystem is based on VC-led innovation that either leads to IPOs or (more frequently) acquisitions. Some firms specialize in acquiring and assembling portfolios. Computer Associates (CA) was one of the first to perfect such a business model. IBM, HP Software, BMC, and many other old-guard software firms also grew in large measure by acquisition.

The well-known downside of acquisition, however, was pithily stated by Oracle’s Larry Ellison, who said that CA was “where software goes to die.” Portfolio firms assemble cash cows and milk them; they are less often in the business of innovation. And from a customer perspective, the whole is often less than the sum of the parts. While sales teams at portfolio companies speak glowingly of integration, the reality is that with stretched engineering budgets, a “platform” of acquired products tends to be lumpy and disjointed, requiring the customer to address hard integration questions that ideally the vendor should solve.

Some of the old portfolio companies have themselves been acquired (CA by Broadcom; HP by Micro Focus). But we’re observing new players emerging, as well. Atlassian in particular is assembling a diverse portfolio that presents integration challenges, as is Digital.ai. The acquisition of Chef by Progress Software (run by a CA veteran) also seems to be more of a portfolio play.

Regardless, customers do appreciate integrations that “just work.” And integrations at least at a technical level are somewhat easier these days, with REST/JSON APIs, generally greater maturity in stitching systems together, and a growing ecosystem of vendors specializing in bridges of various forms. For examples of vendors that acquire and then integrate, look at GitHub and GitLab, each of which has acquired companies that specialize in pre-release security testing. In both cases, the acquisitions represent new features that get built into the existing user experience, rather than extra products sold separately. ServiceNow also tends to fully integrate acquisitions on the Now Platform.

In conclusion, the success, or failure, of any acquisition that fills a niche or larger capability gap needs to be judged by how well it fits into the broader vendor product ecosystem, providing seamless value for the customer. If the new acquisition is a gatherer and processor of data that can readily be integrated into the main platform, then it’s a win. If all you end up with is another loosely integrated dashboard that requires constant context switching to utilize, your gains are marginal at best.

Here for your benefit is our joint list of acquisitions that made our radar, with occasional notes.

For Forrester clients, we are at the ready to take inquiry about these or any other DevOps acquisitions to give you our opinion about whether it will integrate with success or not.