Extreme Networks doubles down with Enterasys

Contact: Tejas Venkatesh

In its first acquisition of a company in more than a decade, Extreme Networks announced the reach for a company its own size: fellow Ethernet switch vendor Enterasys Networks. While the $180m deal may seem aggressive at first glance, we see it more as an opportunistic buy designed to better compete in a market dominated by larger companies like Cisco and Huawei.

The deal values Enterasys, which generated $340m in sales for the year ended June 2013, at just 0.5x trailing sales. That’s a bargain price compared to the 1.2x multiple that Extreme currently garners on the public market. Further, the deal price is less than half of what Enterasys received in its takeover, when buyout firms Gores Group and Tennenbaum Capital Partners acquired the company in November 2005.

As a result of the deal, Extreme’s topline approximately doubles, and this should help the company compete better with larger firms, especially in winning large contracts. The two companies have almost no customer overlap, meaning the combined entity will instantly have more market breadth and a stronger sales force. We will have a full report on the transaction our next Daily 451 newsletter.

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