NetScout Acquired Network General, Will it Blend? (by Tim O’Neill)

Netscout (publicly traded under the symbol NTCT on NASDAQ and with a market capitalization of $300 million) announced that they will acquire Network General (aka NGC, a private company).

They announced that the purchase price will be $205 million which makes sense since on August 1st, NetScout did file with the SEC to sell “up to $120 million in common and preferred stock, debt securities and warrants … for general corporate purposes, including working capital, research and development, strategic transactions and acquisitions of complementary businesses.”

For those of us who have been with the industry for the past fifteen plus years and watched how the two companies have competed fiercely in the marketplace, this is a significant event. Moreover, for those of us who have insights into the history of the two companies, this latest episode is very entertaining if not at least interesting; and unfortunately for some, this could even be personal.

Editor Profile - Tim O’Neill is an independent technology consultant. He has over 30 years experience working in the WAN, Analog, ISDN, ATM and LAN test market. Tim has worked with companies like Navtel, Network General, Ganymede and ClearSight Networks and is now helping companies get lab recognition and technology verification. Tim is also the Chief Contributing Editor for LoveMyTool.com, a website designed to help network managers gain access to valuable information and real solution stories from other customers. Tim is a patent holding, published and degreed engineer, who has seen this technology grow from Teletype (current loop) data analysis to today’s 10 Gigabit LAN’s focused on business applications with heavy compliance demands. Tim can be reached at oldcommguy (at) bellsouth (dot) net.

Note: The quotes and opinions stated herein are personal and do not reflect any corporate positions but just those of informed market participants.

All Right Reserved 2007 – BT Solutions, Inc. and www.LoveMyTool.com

The Times They Are a-Changin’ -- Bob Dylan, 1964

Is this a sign of overall market consolidation?

No, the market is not consolidating yet but the acquisition is clearly a measurable step in bringing potentially new and broader solutions to the market.

As Ed Mier of Mier Consulting points out, “There HAS been some consolidation in the industry off-and-on over the years. So I don't think this signals an unprecedented trend”.

However, Ed and I both agree that network managers today do need a broader solution set but with a common interface. The industry is ready for solutions that are tiered and can grow with their need. If done right, the combined NetScout and NGC products could offer this breadth and depth if and when they are done with the obvious (integrating and consolidating resources and personalities, etc.).

J. Scott Haugdahl, industry expert and former CTO of WildPackets – a competitor to both NetScout and Network General – concurs, “With Network General continuing to recover from the ill-fated NAI merger and subsequent break off as an independent again, two old industry rivals are about to become friends. Key to a buyout of this magnitude will be how quickly the two companies can come up with a cohesive, truly integrated product family. Hopefully the painful integration issues and lessons learned when Network General bought NetVigil will be of value."

There will be no shortage of problems to overcome starting with the user interface, the need to enhance deep packet capture to meet today’s compliance demands, and the fact that the Sniffer visualization is out-of-date. Once these items are put on a common plane and resolved, Netscout/NGC would have the potential of providing an enhanced competitive offering.

Does the industry need consolidation?

Joel Trammel, CEO of NetQoS says, “The industry is undergoing a transition from troubleshooting tools that are used only by engineers to solve isolated problems to solutions that allow customers to continuously monitor and manage how the infrastructure is impacting application performance. Customers want products that provide enterprise-wide visibility through a single integrated view.”

In summary, the industry is in need of solutions and not just tools. Managers have way too much to do to have to take a bunch of discrete tools, figure out how to connect them and then deal with a bunch of different user interfaces. The industry needs solutions that can grow as customer networks do, with common user interfaces and state-of-the-art solution-focused technologies.

Robert Smithers, CEO of Miercom agrees, “The industry is focusing on bringing more full solutions to the market and consolidation of technologies like NetScout and Network General could bring a much broader offering to the market to help users get more out of their network investment while providing for data and user security. The consolidated technologies will also give customers a product spectrum, from entry level to full enterprise solutions.”

Can this Merger work? Will it blend?

Gerald Combs, Founder of Wireshark and Ethereal, says, “Frankly, I'm surprised more consolidation hasn't happened in this industry, considering the sheer number of companies with complimentary product lines. If NetScout and Network General are going to pull this off, they need to do a good job on integrating their product lines. Otherwise they'll still be two separate (and possibly competing) companies. As an example, Network General and McAfee missed a huge opportunity when they were Network Associates. If they had leveraged their product lines correctly, they could have owned the IDS and IPS markets.”

Yes, I wholeheartedly agree with Gerald that the resulting company and solution offerings could change the market but the key is how long will it take to make these two competing market giants into one unified solution for the diverse and confused market.

Time alone will answer this question.

A bit of History

Network General was founded in 1987 and as we all know, has been the industry leader for many years. In 1992, it had a choice between acquiring one of two companies. The one it passed up was Frontier Software. In my humble opinion, the fact that Frontier was due-diligented but ultimately not purchased by NGC harmed Frontier and caused them to struggle for a few years.

According to the S1 statement filed by NetScout in 1999, Frontier was originally owned by Anil K. Singhal and Narendra Popat, the two Founders of NetScout. Since 1992, for the next fifteen years, Network General and NetScout competed with each other, with NetScout remaining much smaller than its nemesis.

Then in 1998, arguably at the beginning of the bubble, McAfee merged with Network General and renamed itself Network Associates. In 2005, at the end of the bubble, McAfee divested itself of Network General and these two companies were once again independent.

Network General has been unable to regain its former leadership position and is only a shadow of its former self, which few of us would disagree, is perhaps the main reason that this acquisition is taking place.

It is not a stretch to imagine that this prize purchase is very sweet for Anil and Narendra, especially after the almost catastrophic and disappointing events of 1993. I was there in 1993 and knew of the personal disappointment that was felt when NGC purchased ProTools and the negative effect it had on Frontier.

NetScout’s success reflects well on Anil and Narendra’s commitment and strength. Now their previous nemesis belongs to them. They have in their hands the potential to be very innovative in the future with the diverse solutions they have acquired.

The Times are a-Changin’ but what will the outcome be and when?

In conclusion, my industry friends and I all wish the new company good luck and look forward to them challenging the market with new and innovative technology offerings.

Other insightful and timely comments from industry insiders and thought leaders:

• How potent is NetScout's buyout of Network General? - by J Scott Haugdahl

  “I think the key to a buyout of this magnitude will be how quickly the two companies can come up with a cohesive, truly integrated product family.”

• Network General: Here we go again - by Douglas Smith, President of Network Instruments

  “What we offer today, they are promising for the end of fiscal 2009.”

• Network General bought at knock-down price - by Bryan Betts of Techworld

  “It seems clear though that in the long term, it's the NetScout reporting tools that will come out on top, with Sniffer added in for when packet analysis is needed.”

• NetScout acquires Network General - by Andrew R. Hickey of SearchNetworking.com

  “Two wrongs don't make a right,” Smith said.

• Adios, Network General - by Cameron Sturdevant of Permit/Deny (eWeek)

  “I'm curious to see what will happen, but one thing is sure: after this many times through the wash cycle, my memories of Network General are much stronger than the brand that got acquired today.”

• Is NetScout Move a Response to NetQoS/Network Instruments Integration? - by NetQoS' Network Performance Daily

  “We believe that this move is primarily a response to our own OEM partnership with Network Instruments and product integration with its GigaStor long-term packet capture products ...”

• NetScout takes Network General - by Alain Sherter of Money Out, Tech Confidential

  “LoveMyTool [is] arguably the best technology blog name ever.”

• Going once, going twice ... Network General, sold for only $205M !!! - by Chris Bloom of WildPackets

  “While this might look good on paper to some, the problem arises when you realize that the real losers in this game of hot potato are the customers.”

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