Monday, February 18, 2008

Ipswitch 'switches' to M&A strategy with Standard Networks buy

By Christopher Calnan

Longtime Bay State software maker Ipswitch Inc. has acquired a Wisconsin software maker this week in a move that kicks off a strategy to turbocharge technological growth via acquisition.

Ipswitch's acquisition this week of Standard Networks Inc., a Madison, Wis.-based software company, is a marked departure from 17 years of organic growth for the Lexington maker of file transfer, network monitoring and message transfer software, founded in 1991.

No financial details were disclosed. But the acquisition is one of a series that Ipswitch plans to make with a pool of capital CEO Roger Greene has provided his three division presidents to generate a growth rate faster than the industrywide rate of 25 percent to 35 percent, said Gary Shottes, president of Ipswitch's file transfer division.

"What we want is to be leading the industry and growing at a rate faster than the industry," said Shottes, though he declined to say how much the company plans to invest in the acquisitions.

Standard Networks, which employs 15 workers, will continue to operate in Madison. It broadens Ipswitch's customer base to enterprise customers. Since 95 percent of Standard Networks' customers are U.S.-based, Shottes said the deal enables Ipswitch to offer Standard's tech internationally.

Standard's target customers include those in the financial service, health care and government markets.

Privately held Ipswitch employs 165 workers and posted 2007 revenue of $35 million, said Greene. That's up from reported revenue of $25.3 million for 2005 and an estimated $28 million for 2006. Greene pins the growth on increased demand for Ipswitch's flagship network-management product.

The new merger-and-acquisition strategy is part of a company restructuring that started in October 2007, segmenting Ipswitch into three divisions: File transfer, network management and messaging. The shift was done to increase the focus of each division president, Shottes said.

That focus is expected to enable division presidents to identify the best M&A targets combined with potential partners in each technology, he said.

Shottes said he considers his two main competitors to be Spokane, Wash.-based Global Scope Software and California-based Tumbleweed Communications Corp.

The three largest competitors in managed file transfer are: Ohio's Sterling Commerce, Arizona's Axway Inc. and New York's CA Inc.

Governmental and industry compliance regulations are fueling a 22 percent and 25 percent a year growth for file transfer software, said Gartner Research director L. Frank Kenney.

Greene said he expects the file transfer market to grow rapidly downstream from enterprise customers to small businesses during the next two or three years. The situation has created a ripe environment for M&A, he said.

"The opportunity is now to establish a company that has the products that ... meet the needs of small businesses," Greene said.