CA Reorients Computer Services Strategy

Rebuffed in a takeover bid early this year that would have given it a worldwide services division in one giant step, Computer Associates Int’l Inc. (CA, Islandia, N.Y., is now taking baby steps toward its stated goal of doing $1 billion in annual services business.

CA’s latest move came with the acquisition of ReaLogic Inc. (Cleveland,, a privately held services consulting company with 350 employees and an estimated $42 million in revenues this year. It was CA’s first move in the services sector since March, when CA abandoned a hostile bid for Computer Sciences Corp. (CSS, El Segundo, Calif., The August deal for ReaLogic was also several orders of magnitude smaller than the $9.2 billion leveraged buyout CA had been offering for CSC, a services company with 1998 annual revenues of $6.6 billion and 45,000 employees.

CA and ReaLogic aren’t disclosing the value of their deal.

Chris Wagner, executive vice president, CA’s Global Professional Services, characterized the ReaLogic acquisition as the first in what could be a string of mergers, acquisitions and hiring sprees on the way to developing a services presence in the North American, European, Asia-Pacific and Latin American theaters.

"We’re driving toward a strategy to have services become in excess of 30 percent of total company revenues," Wagner says. CA, traditionally a software company, has annual revenues of about $4.7 billion. "We’re looking for companies that are going to help us get to significant size across the different theaters of operation."

Despite the acrimonious experience with CSC, Wagner says acquisitions of companies with revenues above $1 billion are still an option for CA: "We’re not really ruling anything out. If it makes sense, it makes sense. That’s kind of the strategy."

Analyst Jonathan Eunice, with Illuminata Inc. (Nashua, N.H.), calls the acquisition "good" but "small," with the main drawback’s being that ReaLogic’s people will have to get up to speed on CA software such as Unicenter, an enterprise management product. ReaLogic’s service business has been primarily in workgroups, infrastructure, packaged applications and e-commerce. "CA was able to hire here 300 to 400 people at a time, which makes it a good hire," Eunice says. "It’s basically stepping back and saying, `OK, if we can’t buy [a services division] all in one fell swoop, we’ll buy it piece by piece."