Banking

Successful tech mergers require strong analysis and planning

OPNET Technologies' CTO discusses his company's aggressive acquisition strategy and overcoming inherent hurdles in melding staffs and technologies for successful product delivery.


Corporate acquisitions or mergers can be a nightmare, especially for the CIO and CTO, who are tasked with making two or more vastly different information infrastructures "play nice" with each other. The next challenge is then to meld two unique IT philosophies into one. For all the risk and hard work these efforts involve, mergers do have the potential of turning a corporate also-ran into a "900-lb gorilla."

That’s what a few mergers have done for OPNET Technologies, Inc., a 16-year-old Bethesda, MD, network management software provider. In March 2001, OPNET took the first steps to acquire the assets and operations of the Cary, NC-based NetMaker division of Make Systems, Inc., a privately held software company in San Mateo, CA. The acquisition contributed key components to OPNET's product road map by broadening the company's product suite for the service-provider market. The deal, which cost OPNET $5 million in cash and 625,000 shares of common stock, strengthened OPNET’s tool kit for its service-provider Guru product.

The urge to merge
In the mid- to late 90s, there was a frenetic M&A fever among corporations, specifically technology startups, as many companies found that it's sometimes much quicker to buy than to build product components. While it’s crucial that the chosen technology is a good fit for a vendor’s toolkit, there are other key elements to successful acquisitions.

"Design is one of the important components of predictive network management, and we believe NetMaker's advanced technologies for automated network design are best-in-class," Alain Cohen, OPNET cofounder/president and CTO, stated during an announcement about the acquisition. Cohen said he was excited "about the synergies this acquisition brings to our product suite. The Make products fit squarely into our strategy of maximizing the value obtained from network resources, reducing the costs and time required to operate networks, and improving service levels."

OPNET’s leaders were confident it was a good fit in terms of staffing and expertise. "There is also a good cultural match between the NetMaker team, which is primarily a technical group, and the engineering divisions of OPNET,” said Cohen. OPNET retained the bulk of NetMaker's technical staff, including senior technical management—which, in itself, was no small benefit, according to Cohen’s brother and OPNET cofounder Marc Cohen.

"This is an excellent opportunity to rapidly attract and retain highly qualified technical staff with experience in our field," said Marc, who is also chairman and CEO of OPNET. "The new staff will significantly add to our R&D capability, and NetMaker's advanced software will enrich our service-provider products. Both of these factors contribute to further enhancing our leading position in the predictive network management market."

OPNET sells its products through a direct sales force, international distributors, and original equipment manufacturers and resellers. Its client list includes service providers, such as telecommunications carriers, and application service providers and network equipment manufacturers. Customers include AT&T and UUNET Technologies, as well as Boeing, RR Donnelley, and 3Com.

Success breeds familiarity
This January, OPNET announced its second acquisition target, WDM NetDesign B.V.B.A., a Belgium-based software company with expertise in optical network design. The new entity, OPNET Technologies B.V.B.A., is based in Ghent, Belgium. The Belgium team will initially focus on further development and sales of OPNET's new WDM Guru product, as well as continue research and development of optical network design algorithms to be used in OPNET's products, including Netbiz and SP Guru.

Industry pundits stated that the acquisition strategies have added change validation and optical network design capabilities to OPNET’s products. According to Morgan Stanley analyst Dave Raezer, OPNET's various acquisitions have had a measurable positive impact on their growing business.



The inside scoop
As Alain Cohen now knows the merger game inside out, TechRepublic spent time recently talking with the CTO about lessons learned during the acquisition efforts. We also asked for his advice about how to control what often becomes a chaotic and complex enterprise effort, and asked for some of his tips for other enterprises contemplating a merger or acquisition.



Making acquisitions work
TR: OPNET appears to believe firmly in growth by acquisition. Why?
Alain: We always have to consider the "make" vs. "buy" tradeoff when considering technology enhancements to our product portfolio. We often choose to build new technology on our own or to partner with other leading companies in the industry and provide some kind of integration. In other situations, we choose to acquire what we need by buying another company.

TR: What's the biggest hurdle in an acquisition scenario?
Alain: Every acquisition is different, so it's hard to identify generalities that apply to all of them except that acquisitions need to be analyzed carefully and need to make good business sense. Human assets are the most important assets in our business. So naturally, we focused heavily on making sure the key staff that joined our team from NetMaker and WDM were good fits above everything else.
Business strategies did not change much for us—the reason for our acquisitions was to execute on specific business strategies we already had. We chose companies that we thought were a good fit.
That leaves technology integration, which I'd say is the biggest challenge. I'm pleased to say that this is going very well so far. We're demonstrating new products at COMNET 2002 this year that both came directly from our acquisitions.

TR: How did the company prepare and get insight into the right approaches to take when pursuing such an aggressive acquisition strategy? Were consultants or specialists involved?
Alain: We relied on our own staff at the highest level to ensure the success of our acquisitions and to manage outside help. We outsourced a significant part of the execution work to our investment bankers, outside legal counsel, and financial accounting firm. [They performed] financial due diligence, execution, deal structuring, and [provided] the accounting framework. Technical due diligence was performed by our own staff.

Shifting technology focus
TR: How does an IT staff change its focus from one set of technologies to another during a series of acquisitions? Is constant training necessarily going on?
Alain: Funny you should ask that question. OPNET sells software to identify problems with changes to IT infrastructure. So my first piece of advice to people considering acquisitions and concerned with impact on IT is to look into our software. In our case, the changes to our IT infrastructure were minimal and did not create any problems for us. The reason is that the companies we acquired were relatively small. Also, internally, we have the philosophy of making it easy (and secure, of course) for remote staff to access our corporate information remotely. Adding new facilities in Belgium and North Carolina was facilitated by this existing infrastructure. We definitely picked up some good people in both acquisitions and also some "best practices" that we now use regularly. Again, communication with key staff is critical—they know their systems and products better than anyone else.

TR: How helpful is it to retain members of an acquired organization's IT staff after the dust settles?
Alain: In our case, keeping the key people (including engineers, IT staff, and business managers) was essential to a successful transition. None of the new products we'll be demonstrating at COMNET would have been possible if we had not kept the key staff from the companies we acquired.

Hindsight is 20/20
TR: If you were to start all over again, what would you do differently?
Alain: We've been very fortunate, so I don't have many regrets. However, some things I think that made us successful include:
  • Meeting and brainstorming extensively with key personnel on both sides to get full business and technical buy-in in advance. Both sides need to understand and believe that both sides will win. The managers on both sides will be left with the responsibility of making things work after the transaction closes.
  • Immediately after the acquisition, senior management from both sides needs to place a high priority on communication, whether in person on-site or using video conferencing when possible to improve remote interaction.
  • Prior to moving forward, think through the business and technical costs and benefits very carefully. Don't outsource your strategy—ultimately, that's up to you.

TR: You wouldn't change anything then?
Alain: Not really. We were very cautious and disciplined in our approach to building our company, and also in conducting ourselves during the acquisition process. Luckily for us, analyzing our acquisition opportunities very carefully in advance proved to be good for us. We're very pleased with the results.

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