Leading information technology (IT) management software company CA Inc. (CA) recently disclosed that it has entered into an agreement to acquire privately-held software company Nimsoft, Inc. in an all-cash deal valued at $350 million.

The company provides IT performance and availability monitoring software solutions for emerging enterprises and other managed service providers. This acquisition will help CA to access a number of smaller-companies served by Nimsoft, which generates revenue in the range of $300 million to $2 billion. This will help CA to enter the SMB (Small & Medium Business Segment) in a big way, which is mainly serving the larger corporate customers.

In addition, CA expects the acquisition to enhance its IT management needs of emerging enterprises, which are playing a leading role in the cloud computing arena. As per CA’s estimate, these companies will provide almost 25.0% of the software spending in CA’s market by the year 2013.

The company is slowly emerging as a strong player in the cloud computing space. CA Inc.’s emerging opportunity in the virtualization/cloud computing space is significant and could help accelerate growth over the next 2-3 years. Particularly, 2010 is likely to be the turning point, establishing CA as a beneficiary of virtualization/cloud computing. The company’s recent acquisition of the cloud computing company Oblicore Inc. enabled it to harness the technical know-how of Oblicore to enter the cloud computing business.

Cloud computing enjoys strong demand and is being increasingly adopted by businesses. However, managing the way it is used will be very important. As per a recent study conducted by Market Research Media, the U.S. government’s spending on cloud computing is entering a phase of explosive growth. The segment is expected to grow at a CAGR of 40.0% from 2010 to 2015 and will pass $7.0 billion in 2015. Cloud computing leads to increased service and elevated security requirements for the companies that use them and CA is expected to reap the benefit from this exponential growth.

The company reported in-line third quarter 2010 results, with EPS of 43 cents exceeding the Zacks Consensus Estimate by just a penny. It also provided a positive outlook for full fiscal year 2010. For the upcoming quarter, the Zacks Consensus Estimate is 40 cents, falling short of the consensus estimate by 3 cents, thereby leaving room for some upside potential.

Analysts are continuing with their previous estimates, as evident from the lack of upward or downward revisions in the last 30 days. The company has displayed an average earnings surprise of 6.20% in the last four quarters, and with revival in IT spending and growth in the cloud computing business, the trend is expected to continue in the coming quarters.

“CA” Free Stock Analysis: Buy? Sell? Hold?
Zacks Investment Research