Troubled Mercury Interactive to buy Systinet

09.01.2006
Mercury Interactive Corp., which was delisted from the Nasdaq Stock Market last week and is embroiled in an internal investigation over incorrect accounting by top executives, announced Monday that it has signed an agreement to acquire service-oriented architecture (SOA) vendor Systinet Corp. for US$105 million in cash.

The deal, scheduled to be finalized in the first quarter of the year, will match Mercury's tools for IT governance and application management with Burlington, Mass.-based Systinet's software for SOA governance and management, according to Mercury executives.

Initially, Mountain View Calif.-based Mercury will operate Systinet as a wholly owned subsidiary to ensure that leadership focus and product releases operate "on all cylinders," said Mercury CEO Tony Zingale. However, the sales divisions of the two companies will begin working together immediately.

"We're very focused on ensuring ... that this pipeline in place at Systinet gets executed on, [and] the current releases get executed on," Zingale said.

Both the founder and CEO of Systinet will stay with the company, according to Mercury executives.

The acquisition signals Mercury's ability to move forward with its strategic plans despite ongoing challenges, Zingale said (see "Nasdaq to drop Mercury in wake of accounting mess") . An internal investigation into the company's accounting showed a pattern of incorrect recording of stock-option grants. According to the investigation, Mercury's CEO, chief financial officer and general counsel all knew of the inaccurate reporting and profited from it. In November, the three executives resigned from the company. Mercury was eventually delisted by Nasdaq because it failed to file financial reports on time.

Systinet's Registry product is designed to allow users to publish and manage business services, and its Policy Manager tool is designed to allow enterprises to streamline policy creation and ensure that services meet required polices before going into production. Systinet's 170 customers include Amazon.com Inc., The Hartford Financial Services Group Inc. and the Defense Information Systems Agency, which is using Systinet tools across the Defense Department to catalog and manage Web services created by the U.S. Air Force, Army, Navy and other agencies.

David Murphy, Mercury's chief financial officer, said there is significant overlap among Systinet's customers and Mercury's customer base.

"[SOA] is a second generation of the kind of applications customers are now building on top of their existing ERP or other legacy systems of record," Murphy said. "Mercury will leverage the Systinet platform to help customers mitigate the risk [of SOA initiatives]. We are now in a position to combine uniquely the SOA registry [with] the ability to manage the Web-service and SOA components through their life cycle and ... then add monitoring."