NetScout buying Network General for $205 million

Performance-management software maker NetScout to acquire Sniffer packet-analysis technology maker Network General

Network- and application-performance management vendor NetScout Thursday announced plans to acquire Sniffer maker Network General for roughly $205 million.

The acquisition, expected to close in early November, will equip NetScout with deep packet inspection and analysis capabilities for VoIP and converged networks, virtual environments, advanced IP applications, and more that company officials say NetScout doesn't do today. With complementary technologies and some overlap in customer base -- NetScout has about 1,000 and Network General more than 4,000 -- NetScout officials expect the acquisition to increase their company’s value in existing customer accounts.

"Our business has been strong, and we raised guidance on our earnings today. We have been seeing a very active demand in our customer base for Network General capabilities, and we expect this buy to accelerate our growth, our R&D and more," says Jim Frey, NetScout vice president of marketing. The company also today raised its guidance on revenue by $1 million to $29 million to $30 million for the second quarter of fiscal 2008. "The updated guidance is based on the strength of our business, and we expect the combined organization to double our run-rate revenue," Frey says.

Network General, best known for its Sniffer protocol-analysis technology, in the past few years has been working to broaden buyers' awareness of the company, which chiefly had been known for its go-to troubleshooting tool. "We have the ability to correlate business services performance down to the packet," a company spokeswoman said before the acquisition announcement. "We have the products in place, and we need to get the word out that Sniffer is more than it used to be."

Financially speaking, Network General’s performance has been a mixed bag in recent years. In 2004, Network Associates (now McAfee), which had acquired Network General for $1.3 billion in 1997, sold the money-losing Sniffer business to private-equity firms Silver Lake Partners and Texas Pacific Group for $275 million. The investment firms will end up with an equity position in NetScout of about 16% of outstanding shares when the deal closes, Frey says.

Then Network General in 2006 acquired Fidelia, a small software maker that focuses its NetVigil technology on grouping the relationships among applications, servers and network devices making up a business service. The purchase was a smart move for Network General, considering that competition among the device-centric network-management vendors was heating up, industry watchers said at the time.

Now the veteran company will combine its efforts with NetScout's to deliver a more comprehensive product set to customers. Frey says NetScout technology will link Network General's expertise in managing network, applications and servers from the bottom up with NetScout's top-down approach to real-time network and application-performance monitoring and management.

NetScout plans to take on all Network General employees (the number is unspecified because of acquisition-closing processes) and continue to support all Network General products.

"We are not going to stop any product lines. It is very important that we protect all customers on both sides and their investments in both companies' technology," Frey says. NetScout first will be working to deliver software that will allow interoperability between NetScout and Network General products. "The first step is to cover about 90% of active business by using software to get those product lines working together for customers," he says.

According to industry watchers, the acquisition will help enterprise customers link much-needed network data to higher-level management efforts to improve application performance and deliver better services to the business.

"NetScout's acquisition of Network General lays a powerful and cohesive foundation for assuring application service reliability across the distributed network environment -- a complex and multidomain requirement that we believe will demand accelerated attention as application designs become more modular and more network-dependent," said Dennis Drogseth, a research vice president with Enterprise Management Associates, in a NetScout press release.

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