Category: networking

After dating, InfoVista marries the girl from Ipanema

Brenon Daly

Contact: Brenon Daly

Announcing its third – and largest – acquisition since its take-private in 2011, InfoVista has paid an undisclosed amount for Ipanema Technologies. The deal between the two France-based companies, which had an existing technology partnership, extends InfoVista’s core network performance management to the applications that run on them. Founded in 1999, Ipanema is primarily known for its WAN optimization offering.

The purchase also brings InfoVista, which does virtually all of its sales directly, Ipanema’s sales channel. Ipanema goes to market primarily through more than 50 partners, including many of the large Western European communication service providers such as Telefónica and BT. Altogether, it serves some 750 enterprise customers. (Subscribers to 451 Research’s M&A KnowledgeBase can see our estimate for Ipanema’s revenue here.) We’ll have a full report on this transaction in tomorrow’s 451 Market Insight.

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Bain reaches into Thoma Bravo’s closet for a Blue Coat

Brenon Daly

Contact: Brenon Daly

More than three years after going private, Blue Coat Systems has been flipped to another private equity firm at nearly twice the price of the initial leveraged buyout (LBO) by a Thoma Bravo-led consortium. Bain Capital said Tuesday that it will pay $2.4bn in cash for the old-line networking and security vendor. (Subscribers to The 451 M&A KnowledgeBase can click here to see our estimates for both the trailing revenue and cash flow at Blue Coat.) Thoma Bravo took Blue Coat private for $1.3bn in late 2011, after HP was rumored to have dropped out of the bidding.

Under Thoma’s ownership, we understand that Blue Coat returned to mid-teens percentage growth as it expanded beyond its core offering of network security and WAN optimization, both of which are rather mature markets. (For instance, a mid-2014 survey of more than 200 information security professional by TheInfoPro, a service of 451 Research, showed that almost nine out of 10 respondents (86%) have already deployed some form of Web content filtering, a long-standing offering from Blue Coat.)

Blue Coat made three acquisitions while in Thoma Bravo’s portfolio, including paying a rather ‘un-PE’ multiple for network analytics startup Solera Networks. (Click here to see our proprietary estimate of terms of that transaction.) Of course, being a PE-owned company, Blue Coat also fattened up its cash flow in recent years. According to our understanding, Thoma Bravo has more than tripled Blue Coat’s EBITDA since the LBO.

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Buying a dried-up Riverbed

Brenon Daly

-by Brenon Daly, Christian Renaud

Announcing its largest-ever acquisition, private equity (PE) firm Thoma Bravo says it will pay $3.6bn for Riverbed. The take-private of the WAN optimization vendor comes after more than a year of pressure from activist hedge fund Elliott Management. Under terms, Thoma, which has a history of profitably acquiring infrastructure software providers, will hand over $21 for each of the roughly 170 million fully diluted Riverbed shares.

Thoma Bravo is valuing Riverbed at 3.4x the $1bn that the company has put up over the past year. (Sales growth has been underwhelming so far in 2014. Through the first three quarters of the year, Riverbed inched up its top line by 6% – just one-quarter the growth rate from full-year 2013.) The valuation is roughly in line with other recent significant take-privates such as Thoma’s leveraged buyout of Compuware and Vista Equity Partners’ LBO of TIBCO Software.

The primary reason why Riverbed’s growth has stalled – which precipitated the initial unsolicited approach from Elliott – is the considerable changes in market requirements (greater demand for traffic analysis and grooming) and enterprise networking (evolution to cloud-delivered services). A study by TheInfoPro, a service of 451 Research, earlier this year indicated that more customers were planning to cut their spending with Riverbed in 2014 than increase their spending with the vendor. We’ll have a full report on this transaction in tomorrow’s 451 Market Insight.

RVBD spend plan

 

NetApp carves SteelStore out of Riverbed

Brenon Daly

Contact: Brenon Daly

NetApp’s first acquisition in more than a year and a half comes with a bit of a twist. The storage giant is only a few months removed from a period in which hedge fund Elliott Management was stirring for changes at the company. Having largely settled with the activist investor, NetApp has now picked up a division carved out from Riverbed Technology, which is currently being targeted by Elliott.

Terms call for NetApp to pay $80m for Riverbed’s SteelStore cloud storage gateway. The size of the business, which was formerly known as Whitewater, wasn’t disclosed. However, our understanding is that it was generating less than $10m in sales. Only 26 employees are going over to NetApp as part of the deal.

SteelStore was part of Riverbed’s broader portfolio expansion, an effort that hasn’t really paid off for the company. Some 70% of Riverbed’s revenue still comes from its core WAN optimization unit. The slowdown in that business is one of the main drags on Riverbed, which recently forecasted that sales in the current quarter may be flat.

However, according to our understanding of the transaction, it wasn’t driven by Riverbed, which is currently exploring ‘strategic alternatives,’ looking to jettison a non-core business. Instead, we gather that NetApp went after the division. Neither side used a financial adviser.

That dynamic may help explain the relatively rich valuation of the deal. (Though we would note that both EMC and Microsoft also paid princely multiples in their purchases of cloud storage gateways.) Also, price-to-sales multiples tend to get exaggerated by companies posting only tiny revenue.

And to be clear, virtually all of the cloud storage gateway startups are generating tiny sales. In a recent study of IT professionals at midsized and large enterprises conducted by TheInfoPro, a service of 451 Research service, only 4% of participating companies had deployed cloud storage gateways – a figure that was essentially unchanged from a similar TIP study in 2013. (See our full report .) With the cloud storage market still very much in its early stages, we would argue that a gateway startup is more at home in a storage vendor like NetApp than in a networking provider like Riverbed.

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Did SAP exercise an an opportunistic option for OpTier?

Brenon Daly

-by Brenon Daly

Despite raising more than $100m in backing, OpTier quietly wound down this summer after a dozen years in business. Even more quietly, some of the assets from the formerly highly valued startup may have been snapped up on the cheap by SAP.

That’s according to several market sources, and an opportunistic purchase would certainly make sense. SAP licensed a fair amount of OpTier to monitor its cloud software internally, so it could have simply brought the technology in-house. Although a deal hasn’t been announced (much less terms for any transaction), we understand SAP paid $10-20m for much of OpTier’s IP.

Assuming our understanding is correct, it would mark a sharp comedown for OpTier. As recently as three years ago, the Israeli startup was reported to be seeking an exit of up to $300m in a process run by Morgan Stanley, which is also an investor in OpTier.

Although OpTier grew quickly through much of the past decade with its business transaction monitoring product, it was slow to step into the more valuable market of code-level application performance monitoring (APM). (See our 2012 report on the ‘pivot’ at OpTier .) For comparison, at least two APM startups founded after OpTier – AppDynamics and New Relic – are both valued in the neighborhood of $1bn and are expected to go public in 2015.

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VMware needs more ‘Know Limits’, less of ‘No Limits’

Brenon Daly

Contact: Brenon Daly

As VMware lowers the curtain Thursday on its annual gathering of customers and partners, we have a suggestion for planning VMworld 2015: come up with a better tagline than this year’s conference. The slogan ‘No Limits’ was inescapable at this week’s confab, graffitied onto walls and parroted by most VMware executives. Undoubtedly, the focus-grouped message was meant to convey the image of VMware standing as a central provider in an IT landscape of boundless resources, all flowing together seamlessly.

The reality, of course, is not quite so idyllic. (Just ask anyone at VMworld who has gone hand to hand in the past with some of the company’s management products, which have now been further complicated by being bundled together in vRealize Suite.) Enterprise technology is messy and prone to breaking down. The solution to that complexity isn’t to add more.

Rather than pushing the idea of No Limits, VMworld would have been more responsibly taglined ‘Know Limits.’ We acknowledge that our tweak on the slogan knocks some of the enthusiasm out of it. And when a company needs to come up with $1bn of net new revenue next year (taking the top line from basically $6bn in 2014 to $7bn in 2015), enthusiasm is a key selling point.

The kicker on VMware’s selection of No Limits as its central message to the 22,000 attendees of its annual confab is that the company should know that there are indeed limits to technology. In fact, at last year’s VMworld the company was only just dusting itself off after having hit some limits of its own. It found out, for instance, that it wasn’t an application software vendor, so it divested SlideRocket and Zimbra as part of a larger reorganization in the first half of 2013.

There’s no doubt that VMware is a far healthier company at this year’s VMworld than it was at last year’s event. (For the record, the 2013 VMworld tagline was ‘Defy Convention.’) We would argue that the company is healthier because it replaced its freewheeling, expansive operations with a more focused and disciplined approach to business. (In other words, VMware imposed some limits on itself.) Strategically, it pared down its portfolio and simplified it into three distinct offerings. The net result? VMware is growing 50% faster in the two quarters leading into this year’s VMworld than in the two quarters heading into last year’s confab.

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As HP looks to set back into M&A market, who’s on its short-list?

Brenon Daly

Contact: Brenon Daly

Now that Hewlett-Packard is once again growing organically, we’re hearing that the tech giant is looking to grow inorganically once again, too. Several market sources have indicated in recent days that HP has pursued a large network platform play, as well as a smaller round-out for its application security portfolio.

Before we look at the specifics of each rumor, it’s worth noting the fact that any acquisition would be a dramatic reversal from the company’s recent stance. Since its disastrous purchase of Autonomy in mid-2011, HP has stepped almost entirely out of the M&A market, announcing just a pair of small transactions. For comparison, IBM has inked more than 30 deals in the same three-year period, according to The 451 M&A KnowledgeBase.

So who is HP supposedly eyeing? Well, both Blue Coat Systems and WhiteHat Security would bring a dash of color to the company.

Of the two rumored deals, we think the larger one – Blue Coat – is less likely, if just because a more measured return to dealmaking after a three-year hiatus would probably play better among investors, who have bid HP shares up to a three-year high. Blue Coat, with its diverse networking and security product portfolio and headcount of more than 1,400, would also pose a number of integration challenges to a company that is still working through the last big transaction it did. Furthermore, it would likely cost HP more than $2bn.

More reasonably, WhiteHat would likely cost HP only about one-tenth that amount and would be a relatively low-risk expansion to the company’s existing portfolio by bolstering its security services. HP already offers application security, a portfolio built primarily via M&A. HP acquired Web app testing startup SPI Dynamics in June 2007, and then added Fortify Software in August 2010. Fortify, which had a relatively strong partnership with WhiteHat before its sale, stands as one of the few recent deals that HP has done that has actually generated the hoped-for returns.

With one divestiture done, will Juniper cut the cord on Trapeze, too?

Brenon Daly

Contact: Brenon Daly

Having largely worked through an internal cleanup of its operations, Juniper Networks is now looking to shed some of those operations. The networking gear provider recently divested its Junos Pulse to private equity newcomer Siris Capital, pocketing an unexpectedly rich $250m for its mobile and network security division. With Junos Pulse off the books this quarter, we suspect that Juniper will now turn its attention to cutting the cord on Trapeze Networks.

The rumored divestiture of Trapeze (if it indeed comes to pass) would unwind Juniper’s $152m purchase of the WLAN gear provider back in November 2010. (Ironically, Juniper picked up Trapeze when it was divested by Belden.) Although Belden actually turned a (slight) profit on its ownership of Trapeze, we doubt that Juniper will come out ahead on any divestiture because Trapeze has lost much of its standing in the WLAN market. (Even Juniper seems to have acknowledged this, inking a rather involved partnership with WLAN rival Aruba Networks last month.)

Juniper’s moves come as the 18-year-old company faces pressure from activist hedge funds to pick up its performance. (Juniper shares have basically flatlined over the past decade, and have underperformed rival Cisco Systems more recently.) So far, Juniper has focused its efforts on its cost structure, cutting more than 400 jobs over the past year and consolidating its real estate holdings, for instance.

Fittingly for a company under scrutiny from Wall Street gadflies, Juniper’s cost savings have been put toward ‘shareholder friendly’ expenses, such as funding an increased share buyback as well as a newly announced dividend program. We would add that Juniper’s cash, which totals almost $4bn on hand, isn’t going toward M&A. The company hasn’t announced an acquisition in 2014. As things stand now, given Juniper’s focus on its financial operations, we could well imagine that the company will be a net seller – rather than buyer – of businesses this year.

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Cisco’s first big buy of 2014

Scott Denne

Contact: Scott Denne

Cisco ends a brief respite from substantial acquisitions by purchasing Tail-f Systems for $175m. The networking giant hasn’t paid more than $100m for a business in almost 10 months, marking its longest break between $100m deals since 2010-11, when no purchases crossed that mark.

The recent slowdown in Cisco’s dealmaking (this is only its second acquisition of the year) comes amid declining sales. After three years of growth, the company’s revenue dropped below year-ago levels in each of the last two quarters.

With the pickup of network orchestration vendor Tail-f, Cisco aims to bolster its service-provider business, a segment where orders declined 13% in the first quarter of its current fiscal year, 12% in the second, and 5% in the most recent quarter. Cisco expects it will take multiple quarters to return to growth in that segment.

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F5 buys small DDoS vendor Defense.net to bolster growing security business

Scott Denne

Contact: Scott Denne

F5 Networks fires another shot into the security market, buying anti-DDoS company Defense.net. The deal follows the application delivery vendor’s $91m acquisition of antifraud provider Versafe in September 2013.

As it did with Versafe (and most of its acquisitions), F5 is reaching for an early-stage company. Defense.net launched a first product last year and was just beginning to line up customers. Versafe, by comparison, was bought when it was just a $2m business, according to our understanding, and much of that from a partnership with F5.

Though F5 doesn’t break out its security sales in quarterly earnings reports, surveys by TheInfoPro, a service of 451 Research, support the company’s claim that security is a ‘major driver’ of its growth. Overall sales were up 20% year over year last quarter to $420m. In the most recent round of surveys, F5 made its first appearance in several network security categories, including unified threat management and network intrusion detection. Most notably, the company’s ranking in the application-aware firewall category rose to third place in our recent deployment survey, up from fifth a year earlier.

We’ll have a detailed report on this deal in our next 451 Market Insight.

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