NetScout Grabs Network General in $205M Deal

Combined companies say the deal will result in better analysis tools.

Network General will turn yet another page on its 20-plus year history when NetScout Systems on Sept. 20 announces its plans to acquire the company in an estimated $205 million deal.

NetScout Systems, which has had a 20-year joint history with Network General, intends to combine its network probe, real-time monitoring and reporting technology with Network Generals Sniffer "bottoms up analysis" and expert analysis of application activity to create a larger and more competitive entity, according to Jim Frey, vice president of marketing at the Westford, Mass., company.

Although NetScout is a smaller company, it is the acquirer, putting up $50 million in cash, six million shares and $100 million in financing for the deal, Frey said.

NetScout is acquiring Network General from Silver Lake Partners and Texas Pacific Group, which spun out the Sniffer business of Network Associates and took it private in 2004 in a deal valued at $275 million. Network Associates took its old moniker McAfee in the transaction.


To read more about the spin out, click here.

Those investors will now own approximately 16 percent of the combined company and gain seats on the board.

As a result of the combination, NetScout will double the amount of the research and development investment that it makes today. "We can now make these R&D efforts additive instead of being parallel efforts," said Frey.

The combined company will focus on emerging IT challenges such as virtualization and convergence.

"There is demand for packet-based performance management technology. There are problems and challenges that customers face as they start rolling out Voice over IP and assuring quality. Weve been focused on early warning for performance problems and fast troubleshooting of those," said Frey.

Network General also brings to the table detailed expert analysis of application behavior, and expert analysis on interactions going on in the network. "We never tried to compete with them [there]. That wins them business," said Frey.

Industry watcher Dennis Drogseth, vice president at Enterprise Management Associates in Portsmouth, N.H., gave the deal the thumbs up.

"NetScouts been a strong leader in flow-based analysis. Network Generals been a leader in packet analysis with Sniffer. The plans are to bring the two under [NetScouts] nGenius performance management system. Thats a positive," he said.

Network Generals large and loyal base of Sniffer customers also affords NetScout an opportunity to sell its probes and broader performance management capabilities into that base.

Despite that strong customer base, Network General has had a bumpy road since it was spun out of Network Associates in 2004.

Network Associates had invested little in the Sniffer business unit for the seven years that it owned it, and Network General as an independent company had to overcome "the negatives it inherited," Drogseth said.

Network General also experienced some "churn" in its sales force, Drogseth said.

NetScout Systems competes with Network Physics and NetQoS in the market for network performance flow analysis tools.

The deal should put some wind in NetScout Systems sails. The company on Sept. 20 will update its guidance for its second fiscal quarter of 2008, bumping revenue projections up to $29 to $30 million, compared to earlier guidance of $28 to $29 million. NetScout also raised its earnings expectations for the same quarter to 9 to 11 cents a share, compared to the earlier guidance of 8 to 9 cents a share, Frey said.

Bill Gibson, CEO of the San Jose, Calif.-based Network General, will stay on to help with the transition, Frey said. Other details of the integration remain to be ironed out, he said.

The deal is expected to close in early November.


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