Back in 1999, Netscape co-founder Marc Andreessen started a company called Loudcloud to help build software for data centers. With the surge in the Internet, it was a smart idea, but things quickly imploded in the tech wreck of 2001. The company restructured, focused on software, and renamed itself Opsware (NASDAQ:OPSW). The new direction worked quite well, -- so well that now the company has agreed to a $1.65 billion buyout from mighty Hewlett-Packard (NYSE:HPQ).
Opsware develops automation software to help manage the complexities of data centers. The company has 350 customers, including Goldman Sachs (NYSE:GS), GE (NYSE:GE), Microsoft (NASDAQ:MSFT), and Home Depot (NYSE:HD).
The data center is often called the "nerve center" of a company's information technology (IT) department and is a critical strategic asset. Furthermore, managing these environments has become much tougher because of new technologies, spikes in usage, new compliance regulations, and security.
HP realizes the value of enterprise software and, over the past two years, has spent billions on companies such as Mercury Interactive and Peregrine Systems. Opsware looks like a nice fit with the strategy and should help boost growth in the division.
Yet the valuation is at a frothy 15 times trailing-12-month revenues. Keep in mind that the typical enterprise software-companies trade at two times revenues and that Opsware has never posted a net profit. But with HP's large customer base and global sales force, there should be lots of opportunities to pump up revenues.
Foolish investors should also note that another player in the data-center market, BladeLogic, plans to have its IPO this week. In light of the valuation of the Opsware deal, the public offering should be red hot.
Further Foolishness:
- Opsware Ready to Rumble: Fool by Numbers
- Before the Call: Hewlett-Packard Unpacked
- Foolish Forecast: Hewlett-Packard's Ahead of the Pack
Microsoft and Home Depot are Motley Fool Inside Value recommendations. Try out our bargain-hunting newsletter service free for 30 days.
Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares of companies mentioned in this article. He is ranked 2,419 out of more than 60,000 participants in Motley Fool CAPS.
