Category: storage

Carbonite looks upmarket with Zmanda buy

Brenon Daly

Contact: Brenon Daly

After organically attempting to build up its SMB backup business over the past two years, Carbonite decided it needed to do some shopping to accelerate that initiative. The consumer-focused company said Thursday that it will hand over $15m for backup and recovery vendor Zmanda. It is Carbonite’s first acquisition since it went public in mid-2011.

Carbonite’s push into the SMB market is crucial for its business, but it is a risky move for a company that sold exclusively to consumers for the first five years of its life. Carbonite only unveiled an SMB offering in 2010, and that business currently contributes only 15 cents of every dollar in bookings.

As it looks to move upmarket, Carbonite is also facing risks to its core business. The consumer backup market is a lot more cluttered and confused than it was when Carbonite launched in 2005. For instance, Dropbox – although not a full backup vendor by any means – only got going two years after Carbonite, but it has nonetheless drawn 50 million users who store files in that service. Privately held Dropbox doesn’t disclose its revenue but it is thought to be nearly three times bigger than Carbonite’s.

The acquisition of Zmanda also comes as Carbonite is working through recent changes in its basic business, such as introducing additional editions of its core backup offering and shifting around its advertising spending. (Advertising is Carbonite’s single biggest expense, typically consuming about half of the company’s revenue in any given quarter.)

Carbonite has, admittedly, tripped up on a few of those changes. After posting 43% sales growth in the first half of 2012, it lowered its forecasted revenue growth rate to just 34% growth for the back half of this year. (Carbonite, which is in the process of swapping out its CFO, reports Q3 results on October 25.) Shares of the company are currently changing hands at their lowest level since the IPO. Wall Street values the backup vendor, which will record sales of about $83m this year, at just $160m.

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Is Wall Street readying to play Violin?

Brenon Daly

Contact: Brenon Daly

Even as enterprise-focused IPOs have come back into fashion, one key sector of the IT stack has missed out on the recent parade of multibillion-dollar offerings: storage. Indeed, Wall Street has only really seen one new arrival from the enterprise storage market since a flurry of IPOs a half-decade ago that included Data Domain, Isilon, 3PAR and others. Of course, investors can’t buy shares in hardly any of the storage vendors that went public in 2007-2008 because they’ve pretty much all been snapped up by larger companies.

But there very well may be a new storage company coming to market shortly in what should be a hot offering. Violin Memory is rumored to have filed its IPO paperwork in a confidential filing with the SEC and plans to debut in early 2013. We understand that J.P. Morgan Securities, Deutsche Bank Securities, Bank of America Merrill Lynch and Barclays Capital will lead the planned $300m offering.

Market sources have indicated that the fast-growing flash array provider is targeting an initial valuation of more than $1.5bn, which would be twice the price of its latest funding round. It raised $50m in March. We understand that Violin will record about $125m in sales in the current year, which wraps at the end of January. That would be more than twice the revenue it recorded last year.

Assuming Violin does make it public in January, it would be the first significant enterprise storage offering since fellow solid-state storage startup Fusion-io hit the market in mid-2011. That company debuted at a $1.8bn valuation and has added another $1bn to its market capitalization since then.

The relative drought in storage IPOs stands out even more when we consider the fact that we’ve seen high-flying IPOs from nearly all the other sectors supplying the technology that keeps businesses running. In terms of application software, Workday debuted on Friday at a staggering $7.8bn, while the standout infrastructure software offering, Splunk, has created $3bn in market value since its April debut. Palo Alto Networks, an IT security vendor that went public three months ago, is currently valued at $4.2bn. Even the networking sector has a pair of players ready to hit the market shortly, with both Gigamon and Ruckus Wireless on file now.

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Hitachi Data Systems reaches for Cofio

Brenon Daly

Contact: Dave Simpson

In a surprise move, Hitachi Data Systems has announced that it is acquiring Cofio Software, which specializes in data protection. In our last report on Cofio, we noted that the small startup differentiates itself from most other data-protection vendors in that it combines under a single code base a variety of functions, including backup and recovery, multitiered (source and target) data de-duplication, real-time replication, virtual and physical server backup, remote-office backup, bare-metal disaster recovery and continuous data protection.

Financial terms of the transaction were not disclosed. The target had received about $4m in funding, and we estimate that it had roughly 140 customers.

Prior to reaching for Cofio, HDS had relied primarily on a reseller partnership with CommVault for its data-protection strategy. As such, the HDS-Cofio pairing is similar to Dell’s pickup of data-protection specialist AppAssure Software earlier this year. (Dell also had – and still does – a reseller relationship with CommVault.)

We see HDS’s acquisition of a data-protection player as a move to attain its own IP at a time when backup and recovery are becoming increasingly important as IT organizations virtualize more and more mission-critical applications. According to 451 Research, the market for data protection and high availability for virtualized environments will grow at a 43% CAGR through 2014.

HDS’s Cofio buy, along with Dell’s acquisitions of AppAssure and, soon, Quest Software, leaves only one major storage vendor without its own IP in data protection: NetApp.

A new boss and new buys at Acronis

Brenon Daly

Contact: Brenon Daly

The new CEO at Acronis has brought a new M&A strategy to the backup and disaster recovery (DR) vendor. Although the company has plenty of cash – thanks to its mid-30% EBITDA margin – it hasn’t used that to go shopping in the past. And when Acronis has looked at deals, we understand that it has historically been more focused on consolidation or geographic expansion.

That has changed dramatically under CEO Alex Pinchev, who took the top spot at Acronis in January. According to our understanding, Pinchev drove the acquisition of GroupLogic, a company that wasn’t on the M&A list under Acronis’ previous regime. A source says that although Acronis arrived late in the process, it moved quickly to land GroupLogic.

The acquisition gets 10-year-old Acronis solidly into the fast-growing enterprise file-sharing and synchronization market. Acronis eventually plans to integrate GroupLogic’s product into its flagship DR and backup offering.

Granted, the deal won’t have much impact on Acronis’ financials right now. GroupLogic – like rival Syncplicity, which sold to EMC almost four months ago – was probably only generating $2-3m of share/synch revenue. That’s nothing to Acronis, which will sell about $150m of backup and DR this year. But the move does show a change in strategy at Acronis.

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Dell as a mobile manager?

Ben Kolada

Contact: Ben Kolada, Rachel Chalmers, Chris Hazelton

Dell hasn’t hidden its intentions of leveraging its hardware legacy to extend into the enterprise IT market, particularly in regards to software. The PC and server giant recently reinforced its goals with the $2.6bn acquisition of systems management vendor Quest Software. But, as we point out in a recent report, its next move is likely to be in mobile management.

Former CA Technologies CEO and current head of Dell’s software division, John Swainson, made our job a bit easier. Swainson hasn’t been explicit with his plans, but we read some of his recent statements as a signal that Dell may make an imminent move into mobile device management.

That makes sense. Connected devices are the primary target for new applications. They’re also fountains of data that can be gleaned and distilled into BI – which is among the four focus areas for Dell’s software group: security, systems management, business intelligence and applications. In a report detailing the possible future of Dell’s mobile management, we prognosticate about how the company may move into this sector, and with whom. Click here to read the full report.

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With new CEO at Symantec, is Big Yellow planning a big unwind?

Brenon Daly

Contact: Brenon Daly

Is Big Yellow planning to slim down? That’s the question that was echoing around Wall Street on June 25 after Symantec showed Enrique Salem the door following another lackluster quarterly performance.

Symantec reported fiscal Q1 revenue was essentially flat with the year-earlier period, as its storage and server management unit (the company’s largest single business) actually shrank in Q1. Even when the unit grows, it lags Symantec’s other main business of security. For the full previous fiscal year, the storage business increased just 4%, compared to a 20% rise in security sales.

That discrepancy – along with the fact that Symantec shares have lost about one-third of their value since the security company got into the storage business with its mid-2005 acquisition of Veritas – has prompted calls from investors to unwind Veritas. We understand Symantec has been exploring that option since Salem took the top spot three years ago. One of the more intriguing ideas we heard was Symantec swapping its storage business for the RSA unit at EMC. However, we gather the separation of the units, along with tax implications, made that too complicated.

Incoming CEO Steve Bennett, who has been chairman of Symantec for a year, has indicated that he will review Symantec’s portfolio. Wall Street, of course, read a fair amount into that, as well as the CEO changeover. One source noted that Bennett had overseen a handful of divestitures during his tenure as chief executive of Intuit, including shedding the construction management software unit and unwinding the company’s Blue Ocean acquisition. However, we would characterize those moves as a typical bit of corporate housecleaning – a far cry from the teardown that some investors are calling for at Symantec.

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Dell’s hard drive into software

Brenon Daly

by Brenon Daly

Dell plans to more than triple the size of its software business in the coming years, underscoring the tech giant’s transition away from its origins as a box maker. The software division is currently running at around $1.5bn, and John Swainson, the recently appointed president of Dell Software, laid out a target of $5bn in sales for the unit. M&A will continue to help move the company toward that target, he added.

In many ways, the transition that Dell is going through is one that IBM has already been through. Indeed, Swainson and a number of other executives (Tom Kendra and Dave Johnson, among others) that are charged with building out Dell’s software portfolio helped do the same thing at Big Blue. Each of the three executives spent a quarter-century at IBM.

Dell has been a steady buyer of software, with all six of its acquisitions so far this year adding to the company’s software portfolio. The largest, of course, is the recently announced $2.5bn purchase of Quest Software, expected to close later this quarter. While that acquisition brought some much-needed heft to Dell’s software portfolio, Quest was viewed by many as a mixed bag of businesses, including some (such as data protection) that directly overlapped with existing Dell products.

For the software business, Swainson also set out the rather ambitious goal of growing it in the ‘mid-teen’ percentage range. Clearly, that was a long-range goal, one that implies a significant acceleration of existing business as well as a regular contribution from acquisitions. Still, the projection seems like a bit of a stretch. Consider that IBM – a model for Dell – has increased revenue in its software business just 2.5% so far this year.

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Cypress squeezes a bit hard in its bear hug

Contact:  Thejeswi Venkatesh, Ben Kolada

Having increased its offer to buy rival Ramtron International once already, Cypress Semiconductor may have to get ready to do so again. Ramtron’s board unanimously rejected Cypress’s latest bid of $2.68 per share, claiming the deal undervalued the company. Investors continue to agree with Ramtron. Shares of the Colorado Springs, Colorado-based company have consistently traded above Cypress’s unsolicited offer, closing at $3.08 Thursday. That’s about 15% higher than the raised bid.

Cypress’s new offer values Ramtron at 1.4 times trailing sales, only a smidgen above the 1.3 times valuation Ramtron received in Cypress’ initial bid. In comparison, Cypress’s revised offer is also far below its own valuation of about 2.2x trailing revenue.

If Cypress doesn’t come up with a topping bid, it risks losing Ramtron to a competitor. There are already other obvious suitors – most notably STMicroelectronics and Atmel – that have shown both the ability and willingness to make sizable acquisitions. STM ended the March quarter with $1.9bn in cash on its balance sheet while Atmel ended it with $299m. In February 2008, Atmel bought microcontroller designer Quantum Research Group for $88m while STM’s biggest deal to date was its purchase in April 2008 of NXP Semiconductors’ wireless semiconductor business for $1.5bn.

What’s a Smarsh to do?

Ben Kolada

Contact: Ben Kolada

Depending on which way the bidding goes for systems management vendor Quest Software, Smarsh’s future could change considerably. The compliance-focused archiving startup announced in February that it sold a majority of its equity to Quest, just three weeks before its newfound parent became the center of an ongoing bidding war. But one side’s plans for Quest post-close may not include Smarsh.

After the closing bell Tuesday, Vector Capital joined Insight Venture Partners and Quest’s management in announcing that they had increased their offer for Quest to $25.75 per share, for a total deal value of about $2.24bn by our calculations. The revised bid tops a competing offer from an unidentified suitor – widely believed to be Dell – that was announced last week.

While all eyes are on Quest at the moment, the continued bidding casts a shadow over who will ultimately own Smarsh. Right now, the company is seen as more of a Quest investment rather than an operating business unit.

If Insight and the rest ultimately win Quest, Smarsh could be considered just another portfolio company for the private equity firms. However, if that unidentified bidder is Dell, and Dell ultimately wins, Smarsh could soon be cast off, since Dell already offers archiving products competitive to Smarsh. In 2008, Dell acquired MessageOne – a direct rival to Smarsh – for a whopping $155m. Dell also has its own archive storage system, the DX platform, based on software OEMed from Caringo. (However, we’d note that neither of these initiatives seems to have gone too far yet.)

Rather than worry about would could happen in the future, Smarsh is keeping itself busy in the present. The company has announced two acquisitions in the past month. In May, Smarsh bought Web content-archiving vendor Perpetually.com and on Tuesday it announced the purchase of compliance-focused website hoster AdvisorSquare, which targets the finance vertical. The deals should ramp up the company’s growth rate for 2012 and 2013. We estimate that Smarsh generated $20m in revenue last year, or about 30% year-over-year top-line growth.

Timeline

Date Event
February 14, 2012 Quest Software acquires 60% stake in Smarsh.
March 9 Insight Venture Partners and Quest management offer to buy Quest for $2bn.
May 16 Smarsh picks up Perpetually.com.
June 14 Unidentified bidder offers approximately $2.22bn for Quest.
June 18 Smarsh acquires AdvisorSquare from Symantec.
June 19 Vector Capital joins Insight and Quest management to buy Quest for approximately $2.24bn.

Source: The 451 M&A KnowledgeBase

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Columnar database provider SAND Technology puts itself up for sale

Contact: Matt Aslett, Thejeswi Venkatesh, Ben Kolada

Following years of flat revenue and attempts at realigning its business, Canadian columnar database dinosaur SAND Technology has announced that it is exploring strategic alternatives, including an outright sale. The announcement comes barely six months after SAND sold its SAP Information Lifecycle Management product line to Informatica for $8m.

That divestiture was part of the company’s attempt to refocus its core business on its massively parallel columnar database technology, which it acquired back in 1993 with its Nucleus International acquisition(SAND itself was founded nearly a decade earlier, in 1982). However, SAND has long struggled to grow revenue and has been consistently running deeply in the red. Revenue for the Pink Sheets-listed company has hovered at about $7m for the past five years and it suffered a net loss of $2m in its latest fiscal year.

SAND’s prospects for a sale look dim, however. In the past two years, most of the big database vendors have either acquired or developed their own massively parallel columnar technology. In the off chance that SAND does find an interested buyer, it shouldn’t hope for a high valuation. Most precedent M&A transactions in the data-warehousing space were done for rich multiples, including Teradata’s takeout of Aster Data in March 2011 for an estimated 13.6 times sales, HP’s pickup of Vertica in February 2011 for 11x sales and EMC’s reach for Greenplum in July 2010 for an estimated 14x sales. But SAND’s sale would probably be best compared to Kickfire’s sale to Teradata in August 2010, which we suspect was done for scraps.