BMC to acquire Remedy from bankrupt Peregrine

HOUSTON - BMC Software announced Sunday it plans to acquire service-management software maker Remedy for $350 million in cash from Peregrine Systems, which separately filed for bankruptcy.

BMC announced the deal, set to close within 45 to 60 days, as Peregrine also announced it would reorganize under Chapter 11 bankruptcy protection. BMC will pay $350 million in cash to Peregrine pending approval from the U.S. Bankruptcy Court and other regulatory approvals.

BMC, best known for its application and systems management software, will bring Remedy's service management and help desk software into its product portfolio. BMC President and CEO Bob Beauchamp says the Remedy buy will take BMC software from managing disparate IT elements to managing business services across an enterprise. Beauchamp says the deal will combine BMC's performance and availability management strengths with Remedy's service management to offer customers complete enterprise management from a single vendor.

"This acquisition will change the landscape of enterprise management for BMC. Our company will move from managing IT components to managing the business itself," Beauchamp said in a conference call Monday morning.

BMC will acquire all assets of Remedy, including software code, customers, material contracts and employees. Remedy will operate as an independent unit under BMC. The acquisition is one of many for BMC, which between 1995 and 2001 acquired Patrol Software (now its flagship management line), DataTools, BGS Systems, Boole & Babbage, New Dimension Software and Perform.

BMC has had trouble integrating acquired technology into its tool set, while Remedy software has been integrating with BMC for years, Beauchamp said.

Jasmine Noel, principal at JNoel Research, agrees that the purchase will "add a strong management brand to BMC's portfolio without the company having to do any after-the-deal integration work."

She adds that while BMC may be playing catch up with competitors Computer Associates and Hewlett-Packard, both of which already have service management products in place, the deal puts BMC ahead of IBM's Tivoli software division. Tivoli sold its Service Desk line to Peregrine in December 2000, and Peregrine will retain ownership of the software.

CA and HP targeted Tivoli Service Desk users last summer with special deals and rescue programs for their respective helpdesk software tools. Noel says Tivoli has yet to offer an integrated service management product. She expects to see Tivoli make a similar announcement in integrated helpdesk software.

"Tivoli is the only one of the big four without a foothold in the traditional helpdesk market to grow into the integrated service/process management solution that enterprises need," she says. According to a recent Gartner report, BMC gained share in the performance and availability management market while competitors such as CA lost standing.

Aside from the potential gains BMC can garner, Noel says Remedy customers will also benefit from this deal. Remedy users became nervous under Peregrine and feared they would be forced to migrate to Peregrine's ServiceDesk software. And Peregrine had every intention of converting the Remedy customers over, but Remedy customer loyalty was too high to make a smooth transition.

"Once Peregrine realized that, it was only a matter of time and circumstances before a sale happened," Noel says. BMC, on the other hand, intends to exploit that loyalty and keep that company's product line in place. Beauchamp says the two companies' product lines have been integrated for years, and existing Remedy customers will be able to keep operations running smoothly.

"Remedy software has almost a cult-like following among its customer set. And we plan to build on that," Beauchamp said.

BMC will front $110 million to Peregrine to ensure the Remedy acquisition goes smoothly. The debtor-in-possession money will be available to Peregrine until the deal is final. If Peregrine, for example, uses the full $110 million during the next 45 to 60 days, BMC will pay $240 million to acquire the Remedy assets. BMC said it expects Remedy to be profitable on its balance sheets within 12 months.

In a statement, Peregrine CEO Gary Greenfield said, "these actions represent a significant milestone in our strategic initiatives to take control of our own destiny."

The decision to file for Chapter 11 is a new beginning, the company claimed. Peregrine purchased Remedy in August 2001, and continued on a fast growth track.

The company last May encountered its first accounting issues spanning 2000 and 2001. In June, Peregrine began cutting jobs and closing offices. Remedy employees were affected by the cuts, but the current Remedy headcount remains at more than 1,000 employees.

The company also announced a lawsuit with the Superior Court of the State of California in San Diego against accounting firm Arthur Andersen.

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