Deal Focus: IBM To Acquire Green Hat

January 4, 2012

IBM is back to its usual acquisitive pace, with the announcement it plans to acquire application testing software maker Green Hat. The purchase marks IBM’s first acquisition of 2012 and sixth acquisition since October. Privately-held Green Hat makes technology that allows developers to test their product in the cloud, rather than setting up an actual testing lab of hardware and software. Terms of the acquisition were not disclosed.

We wrote about the shift of application testing to the cloud last summer and noted IDC expects global testing services spend to grow to more than $19 billion by 2015 — so it is no surprise that IBM is taking advantage of the market’s growth opportunities. Green Hat’s software creates a virtual environment for software testing that simulates a wide range of IT infrastructure elements, without the constraints of hardware or software services. Green Hat will join IBM’s Rational Software business, and will offer users greater efficiencies when combined with its Rational Solution for Collaborative Lifecycle Management. It will also be offered through IBM Global Business Services’ Application Management Services (AMS).

The typical benefits of a cloud solution apply here — by using Green Hat’s solutions, a virtual test environment can be set up in a matter of minutes versus the weeks it generally takes for traditional set ups, and for a fraction of the cost. The acquisition extends IBM’s offerings for business agility and software quality, ultimately changing the way enterprises manage software development cost, test cycle time and risk.

While IBM’s acquisition pace petered off at the end of 2010 and beginning of 2011 (ironically, a particularly active period for the M&A market), the company managed to eek out eight acquisitions for all of 2011, totaling approximately $2.4 billion. It paid healthy sums and multiples for a number of these companies including DemandTec ($438.5 million; 5.0x revenue); Q1 Labs ($575.0 million; 8.8x revenue) and i2 Inc. ($500 milion; 5.9x revenue). Chances are IBM will resume its regular appetite for acquisitions in 2012: the company has said it plans to spend $20 billion on acquisitions by 2015.


SaaS Models Taking Hold in IT Testing

August 10, 2011

Selling software solutions to IT departments of enterprises has traditionally been a long, complex process. Customers could often only derive value from solutions that involved integration and an extensive training process. However, SaaS models and the cloud are changing all of this. Now products for both development and IT operations organizations are available as a service or as a simple download over the Internet. These solutions require little or no training or integration, are simple and intuitive to use and deliver value immediately.

We have seen evidence of increased cloud utilization in areas of the enterprise such as HRM and SFA, but one sector that is producing a number of strong solutions that are quickly gaining traction is application testing. Research firm IDC estimates that standalone global testing services spending will grow to more than $19 billion over the next four years with a CAGR of over 15%, driven by the continuing shift to the cloud and rapid expansion of ever more capable mobile devices.

It is expected that internal IT or R&D engineering teams will increasingly look to utilize cloud-capable third parties companies for their test environments. Companies such as LoadStorm, which allows customers to accurately determine how user volume affects the performance of their Web applications quickly, offer flexibility and are more cost effective in the short and long term. By leveraging the cloud, customers can also scale the number of simulated users to very large numbers easily. This approach speeds up the testing process and also makes it available and affordable to a much broader set of customers than traditional approaches.

As cloud architectures mature and adoption increases, we expect to see this approach to solving IT problems continue to grow and expand. There have been a handful of acquisitions in this area over the past year and if the past month is any indication (three deals have been announced since the end of June), deal pace is not slowing. Buyers in this area, such as IBM, CA Technologies and HP, are expected to remain active and should continue to pay healthy premiums for sought after cloud testing innovators.

Recent Application Testing Transactions
recent application testing transactions

(click image to enlarge)


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