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Analysts anticipate fresh wave of enterprise technology M&A

CI/CD vendor Harness acquired Armory, reports surfaced of private equity takeover talks for PagerDuty, and that's just the start of more M&A to come, industry experts predict.

Multiple acquisitions and rumors of a private equity takeover among IT vendors this week are likely the beginnings of a surge in enterprise technology M&A this year, according to analysts.

Hewlett-Packard Enterprise disclosed Tuesday that it intends to acquire Juniper Networks for $14 billion. On Thursday, Bloomberg reported that PagerDuty is in talks about a possible sale with a possible takeover by private equity (PE) firms looming, while CI/CD vendor Harness said it had acquired Armory for an undisclosed amount. Armory has offered a continuous deployment product based on open source Spinnaker.

Further enterprise technology M&A will be spurred by a proliferation of specialized software tools and a desire to consolidate them among buyers, said Carlos Casanova, an analyst at Forrester Research.

"High-performance IT organizations must continuously improve business results through technology, and adding complexity does the opposite," Casanova said. "There is still a considerable amount of [vendor] consolidation that will happen and needs to happen."

IDC already saw increased consolidation among DevOps vendors during the second half of 2023, said analyst Katie Norton.

Katie Norton, analyst, IDCKatie Norton

"There is a preference for platforms, in both DevOps and DevSecOps," Norton said. "The trend of platform engineering may make [specialized] tools [acquisition] targets."

Technology M&A slumped in 2022 and especially 2023 following a peak in 2021, according to a November 2023 report by Gartner. Now, factors such as a decrease in venture capital funding and the generative AI boom will contribute to an uptick in deals in 2024, albeit with fewer mega-deals such as VMware's $69 billion acquisition by Broadcom, Gartner predicted.

Private equity poised to pounce

Bloomberg's report about PagerDuty is unconfirmed, but private equity firms are primed to continue enterprise technology M&A deals similar to last year's buyouts of New Relic and Sumo Logic, said Stephen Elliot, an analyst at IDC.

"PE firms have a boatload of money waiting to be used," Elliot said. "The question is, will PE do larger deals -- or roll up separate companies into large companies?"

Torsten Volk, analyst, Enterprise Management AssociatesTorsten Volk

PagerDuty's financial troubles, including taking on $350 million in debt when it has yet to reach profitability, make it a likely target for consolidation, according to Torsten Volk, an analyst at Enterprise Management Associates.

"A company like PagerDuty is a prime acquisition target for PE, as they are solidly growing, yet have no clear path to profitability," he said. "This situation became more urgent when they took on more debt last year and have to generate profit to pay that back."

One PagerDuty user also said a private equity deal seems likely for the vendor.

"While [PagerDuty has] an awesome network and platform, I think they struggle to find meaningful value-added services to put on top of it that existing customers can easily budget [for and] implement," said Andy Domeier, senior director of technology at SPS Commerce, a Minneapolis-based communications network for supply chain and logistics businesses. "I wouldn't be surprised if it was Francisco Partners, who [also] nabbed Sumo Logic ... that would make a lot of sense in their portfolio."

However, a managed service provider could also find PagerDuty a worthwhile buy, especially given how it expanded its AIOps feature set in the last 18 months, Casanova said.

"[PagerDuty's] expansive integration library and open APIs could fit very nicely into existing [MSP] portfolios that are lacking the PagerDuty strengths; normalizing event data, enriching it with remediation-specific data and powering automation workflows," he said.

A PagerDuty PE deal would come with both good news and bad news for IT pros. The good news is that acquisitions bring sources of funding that could help familiar tools remain supported, Elliot said.

"Some PE firms such as Francisco Partners, TPG, Thoma Bravo, Vista Equity, Insight Partners, KKR and JMI are very good with software-centric deals," Elliot said. "It usually helps provide a higher level of focus on customer segments, product execution and sales and partner investments."

The downside is that as smaller specialist vendors are absorbed into larger organizations, it can slow innovation, Volk said.

"For a company with a wide product portfolio like PagerDuty, this can mean focusing on a smaller set of competitive products," Volk said. "For customers of products that are 'out of focus,' this can mean less R&D, less development of new capabilities and, in some cases, the sunset of their favorite product."

Harness seen ordering takeout with Armory buy

The Harness CI/CD platform already offers some of the features Spinnaker is known for, including fast software deployment and rollback support. Harness also has its own open source GitOps project for continuous deployment with Gitness, though it's not seen as a major player in open source compared with CNCF's Argo CD, according to Volk.

"I doubt the integration will be easy, but Spinnaker has a lot of fans in the large-enterprise arena, and 'owning' the open source project is great PR," he said. "The DevOps community likes things to be open source."

Given the product overlap, and the fact that both Harness and Armory had previously positioned themselves as competitive to each other, the deal may be geared more toward customer acquisition and taking out a rival than adding fresh features to Harness, said IDC's Norton.

"Before the [comparative] webpage disappeared, Armory emphasized that they believed they were more declarative, and Harness was more imperative," Norton said. "I am sure there are either engineering staff and technology of Armory's that will be integrated into Harness and the platform, but my take is that this was not the main driver behind the acquisition."

A Harness press release about the deal emphasized that "Armory customers will experience a seamless transition as key Armory engineering and customer support roles are joining Harness to continue supporting existing implementations."

Another Spinnaker vendor, OpsMx, dangled its own incentives for Armory customers in the wake of the Harness deal, including discounts, trade-in credits and support services. It also raised the specter of being "locked into proprietary solutions from Harness," according to a press release.

Beth Pariseau, senior news writer at TechTarget, is an award-winning veteran of IT journalism. She can be reached at [email protected] or on Twitter @PariseauTT.

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