Cavium’s quick moves on MontaVista

Contact: Brenon Daly, Jay Lyman

It was hardly surprising when embedded OS vendor MontaVista Software got snapped up earlier this week. In fact, my colleague Jay Lyman put MontaVista at the top of his hit list for targets in the market in his report back in August. After all, the company was a pioneer of the embedded space and was a clear leader among startups chasing this opportunity. MontaVista was running at about $30m in sales, and we understand that the vendor was targeting $40m and a few million dollars in profit in 2010. What did surprise some observers (including us, to some extent) was the buyer: Cavium Networks. Cavium will pay $50m ($16m in cash, $34m in equity) for MontaVista.

Along with much of the market, we expected IBM to reach for MontaVista as a way to match Intel’s acquisition of Wind River in June. Wind River stands as the giant in the embedded OS sector with revenue about 10 times higher than MontaVista. In a rather uncharacteristic transaction for Intel, the chipmaker paid $884m for Wind River. Several sources indicated that Big Blue, which was a heavy user of Wind River software for its embedded Power chip business, was the cover bidder for the company. Whether or not that’s the case, we understand that IBM’s interest in MontaVista was fitful and ultimately hinged on Big Blue being able to cobble together a coalition of other processor providers. As that effort dragged on, we understand that Cavium moved quickly and wrapped up the deal in about a month.