Lingering questions about NetScout's $2.6bn merger with Fluke, Arbor

NetScout expands its network performance monitoring and security monitoring capabilities with Fluke, Arbor and Tektronix merger, but questions remain.

NetScout Systems hopes its pending $2.6 billion acquisition of Fluke Networks and other technology companies owned by Danaher Corp. will result in more enterprises and service providers using its Adaptive Session Intelligence technology to gain a global view of network performance and security.

The deal also expands NetScout's global reach in the performance management market and gives it an opportunity to build a brand in network security, thanks to Arbor Networks' presence in the transaction.

"We needed better market access in the enterprise and service provider space and we needed to have a broader install base to inject our ASI [Adaptive Session Intelligence] technology," said NetScout founder and CEO Anil Singhal during a webcast held to announce the deal. NetScout's business has traditionally focused on North America while Fluke has more international customers, particularly in the midmarket.

NetScout is acquiring three technology vendors from Danaher– test, measurement and monitoring vendor Tektronix, network management and monitoring vendor Fluke Networks and network security monitoring vendor Arbor Networks, which is best known for its denial of service mitigation technology. The structure of the deal is complex. NetScout is issuing 62.5 million new shares and giving them to Danaher [shareholders] in return for the three companies.  As a result, Danaher actually ends up being NetScout's majority shareholder with a nearly 60% stake. [Correction: NetScout is issuing 62.5 million shares to individual Danaher shareholders. Danaher Corp. does not gain an ownership stake in NetScout].

ASI's global analytics ambition

NetScout describes ASI as a real-time, deep-packet analysis engine. ASI tracks user sessions across network domains and provides real-time metadata and analysis on the performance of those sessions. ASI is a patented, proprietary system that collects data from NetScout products, so the larger the NetScout footprint the more effective is ASI . For instance, if an enterprise and its WAN service providers and cloud providers are all NetScout customers, ASI can deliver a more granular analysis of application performance.

The acquisition of a vendor like Fluke, which has its own portfolio of network monitoring products, is an opportunity to expand NetScout's ASI footprint, said Jim Frey, vice president of research at Enterprise Management Associates.

ASI "is a proprietary approach and with a proprietary approach you get more value if you have more places to get the ASI data from," Frey said. "[NetScout] hasn't gone after partners, so the best strategy is to get more products for the ASI footprint."

More granular network visibility will be especially important as NetScout tries to present its analytics as something that can be of use beyond IT operations. NetScout wants its data to be consumed by security organizations and by business analytics organizations, Frey said.

Performance analytics rivals like Corvil and ExtraHop have also seen the value of feeding their data and analysis into third-party technologies. Both have started allowing their analytics to be fed into big data warehouse platforms.

"Our vision is to build a global sensor network based on ASI… to not only be consumed for IT operations, but to feed that data to third-party consumers," said NetScout's Singhal. "Most big data vendors are differentiating themselves on the quality of their analytics or the scalability of their solutions. With ASI injected into a big data warehouse, they can differentiate further with great data behind the great analytics."

NetScout will closely integrate ASI into the products of the acquired companies within a year of closing the deal, Singhal said.

NetScout wants to build up its security brand

The Arbor Networks component of the transaction, meanwhile, will boost NetScout's ambitions to become a player in the security industry, Frey said. "NetScout would really like to directly address and move into opportunities for security management," he said. "Arbor Networks brings them some strong technology and a reputation in that sector."

The Fluke acquisition also gives NetScout ownership of VSS Monitoring, a manufacturer of network visibility controllers, also known as network monitoring switches or network packet brokers. NetScout has some similar technology already with its nGenius Packet Flow Switches, but the nGenius appliances are more used for passive monitoring while VSS technology is often used for inline monitoring, Frey said. This inline capability is especially useful for network security gateways and other "bump in the wire" appliances.

Uncertainty remains around the NetScout-Danaher deal

NetScout said it expects to close the acquisition of the Danaher units sometime between April and September 2015. Given that NetScout won't be able to start integrating the operations until after the deal closes, network operators will be asking lots of questions over the next six to 12 months as they wait for NetScout to mold the  Fluke, Arbor and Tektronix businesses into a cohesive whole.  Fluke and NetScout customers, for example, will want to know how the two companies' overlapping monitoring products will be integrated.

"That delay will create some uncertainty and NetScout will have to be clear in articulating what the story is," Frey said. "It's going to be a lot of overhang and there will be a lot of questions for a long time."

"We have for 30 years acquired a number of technology companies and protected our customers' investments," said Jim McNiel, vice president of worldwide marketing at NetScout. "We will honor [the] investments that people are making today in Tektronix, Fluke and Arbor."

It also remains unclear how much of Fluke Networks NetScout will acquire. Danaher has shuffled parts of the company around in recent years. That activity included the decision to spin out Visual Network Systems as a separate performance management company four years ago, only to fold it back into Fluke later. There are other test and measurement technology elements of Fluke Networks that may remain behind with Danaher's umbrella Fluke Corp. brand, such as AirMagnet, Fluke's recent wireless LAN design and test acquisition.



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