What can 80 M&As tell us about the state of IT operations management software?
IT operations management (ITOM) software helps enterprises manage the health, availability, and performance of modern IT environments. Analyst firm Gartner expects the ITOM software market to grow to $37 billion in annual revenues by 2023, with legacy on-prem tools giving way to powerful SaaS solutions for hybrid performance monitoring and management.
August this year saw five significant ITOM tool exits, with Splunk acquiring SignalFx for a cool $1.05 billion, Resolve Systems buying out FixStream, Virtual Instruments purchasing Metricly, VMware splurging on Veriflow, and Park Place Technologies acquiring Entuity. In related news, application performance monitoring provider, Dynatrace, went public at a $6.7 billion valuation while cloud monitoring tool, Datadog, recently announced its $100 million IPO listing.
To better understand ITOM software acquisition patterns, we assembled a dataset of 80+ acquisitions and buyouts of ITOM tool vendors since January 2015. This dataset lets IT buyers analyse and decipher the answers to the following questions:
- What industry trends are responsible for a new wave of acquisitions?
- Which ITOM categories have seen the most number of acquisitions and buyouts?
- Which technology leaders have acquired innovative startups in the last few years?
- What role has private equity played in fueling market innovation and consolidation?
- What are the strategic reasons behind an incumbent assembling an acquisition portfolio?
Here are five things we learned from 80+ ITOM software acquisitions over the last five years:
Industry trends fuel new category creation
Research firm IDC expects public cloud spending to grow from $229 billion in 2019 to $500 billion in 2023. The runaway adoption of public cloud infrastructure has unleashed massive disruption in the ITOM software market. Traditional approaches to performance monitoring and cost optimisation are no longer relevant in a world of on-demand, ephemeral, and elastic cloud services. Enterprise cloud consumption has led to several technology acquisitions in the following categories:
- Cloud monitoring: Cloud monitoring tools deliver visibility and control of business-critical services built on multi-cloud and cloud native architectures.
IT operations and DevOps teams have heavily invested in cloud monitoring point tools, which explains the purchase of eight cloud monitoring startups (SignalFx, Metricly, Outlyer, Server Density, Unigma, Wavefront, Opsmatic, Boundary, and Librato) by industry incumbents like Splunk, VMware, New Relic, BMC Software, and SolarWinds
- Cloud management platforms: Cloud management platforms (CMPs) help enterprises migrate on-prem workloads to cloud environments with capabilities for discovery, provisioning, orchestration, and workload balancing.
Technology vendors like Apptio, Flexera, Nutanix, Microsoft, Cisco, ServiceNow, and IBM have made eight CMP acquisitions across startups like FittedCloud, RightScale, Botmetric, Cloudyn, CliQr, ITapp, Gravitant, and FogPanel
- Cloud cost optimisation: Cloud cost optimisation tools let business and IT teams manage public cloud consumption by identifying underutilised and idle cloud instances and delivering real-time recommendations for cloud workload placement. Given the pressing need to avoid cloud sticker shock, industry leaders purchased six cloud cost optimisation tools (Cloudability, ParkMyCloud, StratCloud, CloudHealth Technologies, Cmpute.io, and Cloud Cruiser)
- Network performance monitoring: How do enterprises deliver compelling customer experiences across on-prem, private cloud, and public cloud networks? Network performance monitoring and diagnostics tools offer real-time insight into network traffic utilisation and help troubleshoot problems with multi-layer visibility.
Industry incumbents and investors capitalised on the demand for network monitoring by snapping up eight different tool providers (Entuity, Veriflow, Corvil, Netfort, Savvius, Performance Vision, Gigamon, and Danaher Communications)
- AIOps: The adoption of hybrid and cloud native architectures has led to endless alert storms, where it is nearly impossible for human operators to extract the signal from the noise. Artificial intelligence for IT operations (AIOps) tools apply machine learning and data science techniques to the age-old problem of IT event correlation and analysis.
Larger incumbents have swallowed seven AIOps startups (FixStream, SignifAI, Savision, Evanios, Perspica, Event Enrichment HQ, and Metafor), underlining the need for AI/ML approaches to isolate and pinpoint incident root cause(s).
Growth by acquisition
Since 2015, serial acquirers like SolarWinds, Cisco, ServiceNow, Splunk, Datadog, New Relic, Flexera, VMware, and Nutanix have acquired thirty-two diverse startups across performance monitoring, hybrid discovery, IT service management, cloud management platforms, cloud cost optimisation, and AIOps.
SolarWinds leads the pack with seven deals (Samanage, Loggly, Scout, TraceView, LOGICnow, Papertrail, and Librato) followed by Splunk (SignalFx, VictorOps, Rocana, and Metafor), Cisco (Cmpute.io, Perspica, AppDynamics, and Cliqr) and ServiceNow (FriendlyData, Parlo, DxContinuum, and ITapp) with four acquisitions each.
ITOM software leaders have dedicated corporate strategy, business development, and investment teams that are constantly scouting for the next big thing. Acquiring the right startup can ensure competitive parity, market entry, or talent infusion, which is critical for technology incumbents with stale and aging product portfolios.
Private equity continues to reshape the ITOM software landscape
Private equity (PE) firms like Bain Capital, Insight Partners, KKR, Thoma Bravo, and Vista Equity Partners have had an outsized influence on the ITOM tools market. Companies like Apptio, BMC Software, Cherwell, Connectwise, Continuum Managed Services, Dynatrace, Flexera, Ivanti, Kaseya, LogicMonitor, Optanix, Resolve Systems, Riverbed, and SolarWinds have all benefited from strategic PE investments.
In the managed services software segment, Thoma Bravo alone controls Connectwise, Continuum, and SolarWinds MSP, while Vista Equity Partners engineered a merger between two portfolio companies, Datto and Autotask to create a new managed services leader. Expect PE firms to invest, acquire, and divest portfolio companies, creating new ITOM software winners and losers in the process.
No sign of mega deals slowing down
While Splunk’s billion-dollar deal for SignalFx was astounding, there have been several blockbuster acquisitions and buyouts in the ITOM software market. In the last five years, Broadcom acquired CA Technologies for $18.9 billion, Thoma Bravo purchased Connectwise for $1.5 billion, KKR bought out BMC Software for $8.5 billion, Elliott Management acquired Gigamon for $1.6 billion, Cisco spent $3.7 billion on AppDynamics, Micro Focus engineered a reverse merger with HPE Software for $8.8 billion, NetScout purchased Danaher Communications for $2.3 billion, and Thoma Bravo took Riverbed private for $3.5 billion.
Just these eight deals generated $47+ billion demonstrating sustained momentum and continued investments in ITOM software firms from leading technology vendors and VC/PE firms.
The elusive quest for a unified ITOM platform
Platform thinking is the motivation behind several recent ITOM acquisitions (Splunk’s takeover of Metafor and VictorOps for modern incident management or SolarWind’s TraceView and Librato acquisitions for real-time observability).
The big four ITOM vendors (BMC, CA, IBM, and HP) famously used acquisitions to build their ITOM minisuites (chasing the ever-popular “single pane of glass”). Unfortunately, inorganic product strategies never resulted in a unified platform that could combine disparate performance and capacity insights in a single place.
It is an open question if current industry leaders like ServiceNow, Splunk, and SolarWinds have learned any lessons from the 'big four' acquisition debacles. Every technology acquisition requires significant engineering resources and product roadmap enhancements for successful integration with an incumbent’s platform. Enterprise IT buyers should carefully verify whether there remains continued focus and commitment to making the acquisition work before writing a big check to an industry leader that touts its recent acquisitions as proof of its innovation DNA.
The bottom line?
Next-generation technology startups are constantly redefining customer expectations with innovative solutions for modern digital operations management. Industry incumbents will continue to use acquisitions as a means to acquire modern technologies, battle-tested talent, and market credibility.
IT buyers should partner with technology startups for emerging use cases as well as evaluate how incumbent vendors are modernising their technology portfolios and truly integrating the acquired technology to achieve the long-sought-after vision of a single pane of glass. Otherwise, they may instead end up with the more common scenario of a single glass of pain.
Interested in hearing industry leaders discuss subjects like this and sharing their experiences and use-cases? Attend the Cyber Security & Cloud Expo World Series with upcoming events in Silicon Valley, London and Amsterdam to learn more.
- » Don’t forget to budget for business objectives to gain digital transformation ROI
- » Microsoft posts more strong financials and 62% Azure growth – with differentiation key to success
- » Netskope secures $340m in funding at $3bn valuation to further cloud security mission
- » More sensitive data moves to the enterprise cloud – but the security risk widens with it
- » SAP announces solid Q419 revenues – but decline in new cloud bookings causes concern