Tom Hogan is leaving Vignette [VIGN] to become SVP of Hewlett-Packard's software group. This is an interesting move for Hogan for several reasons. One, he's seemingly leaving Vignette at a point where the company is finally showing signs of life. Vignette has put together five consecutive quarters of record earnings [non-GAAP], a long-time coming for Hogan and the company.
When Hogan joined Vignette in 2002, he was viewed as a savior for a company that was struggling to define a cohesive value proposition. Hogan had been the head of sales at Siebel at the time. This wasn't the Siebel we all saw wither and get taken out by Oracle, this was at a time when Siebel ran arguably THE best applications software sales force.
But the truth is, Hogan never really got Vignette out of the "me too" camp. They've been a content management vendor, a portal vendor, an e-commerce enablement vendor, a collaboration vendor, an analytics vendor, a CRM vendor, and probably two or three other things I'm forgetting at the moment.
So what does this move mean for Hewlett? HP has been a laggard in terms of its software unit, as HP Openview remains a secondary player in the systems management market. Although HP made a few notable acquisitions last year [Peregrine was a fine purchase, for example], we all keep waiting for HP to become a more aggressive M&A suitor. I'm betting Hogan's hiring is a harbinger of just that. I find it hard to believe that Hogan left Vignette without assurances that HP isn't content to let its existing $1B software unit grow at current levels [i.e., mid-single to low double-digit growth].
Hogan's challenges at HP include:
- Re-defining OpenView to existing and prospective customers -- HP has to get out of the shadow of Tivoli, Unicenter and at the same time, prove its relevance against the younger more nimble management vendors like Mercury Interactive
- Deciding whether software is REALLY going to be a core competency -- IBM generates $16B in software revenue and it's now their largest profit generator [37% of profits last Q]. HP has a long way to go [but arguably lots of runway] before its software arm impacts the overall company is such a tangible manner. In fact, CEO Mark Hurd recently noted that software attach rates are running at a meager 10% of HP hardware sales.
- Map out an aggressive M&A calendar -- I've been critical of large software mergers in the past, but HP has no choice but to become a serial acquirer at this point. The market is maturing, M&A activity continues apace, and HP will have to do a lot just to keep pace; there are holes in the existing suite and myriad avenues HP software can expand in a hurry
- Grow without creating dilution or disappointing the Street -- Here comes the tricky part. HP is in turnaround mode after the debacle that was Carly Fiorina. HP simply can't acquire software properties that are significantly unprofitable nor can they overpay relative to current software M&A multiples [i.e., 4-6x forward revenues, 6x-8x TTM maintenance]
So let's see...they need to a) grow quickly, b) keep the Street happy, c) acquire scale, d) do it profitably and e) do it strategically. Sounds to me like Tom Hogan and HP have their hands full, and that HP may soon be joining the short list of companies willing to acquire mid-cap, public software vendors.
Note: At the time of this writing, I and/or funds I maintain discretionary control over maintained a long equity position in MERQ but did not maintain a position [long or short] in CA, HP, IBM or VIGN.