DCIM companies get in datacenters but can’t find exits

Contact: Rhonda Ascierto

More datacenter operators are using datacenter infrastructure management (DCIM) software to connect silos of data about power, cooling, space and connectivity. Though early, widespread adoption of DCIM seems inevitable, and this has attracted a rash of suppliers – we track about 70 or so. But a growing, largely untapped market has not meant success for all suppliers. Large DCIM deals are hard won, with long sales cycles. That’s made it tough for small suppliers to get a foothold and, therefore, has limited the exit potential in the space.

While some smaller players are growing, more are becoming marginalized. There were four DCIM acquisitions in 2014, according to The 451 M&A KnowledgeBase, including suppliers of mature software being used by some large facilities. We believe none of the companies’ sale prices matched or exceeded the capital they raised. They include N’compass, which was bought for $5m (less than 1x TTM revenue, we believe) by OTCBB company AlphaPoint last month, and Power Analytics, a decades-old DCIM supplier that was picked up by a local patent licensing firm in July.

Nearly half (45%) of all DCIM revenue is driven by just five vendors, and the top three are giants Emerson Network Power, Schneider Electric and Panduit. We expect revenue to continue to flow to large and diversified players. They spend heavily on development, and they promise longevity, which is important: ideally, DCIM is for the life of the datacenter.

There are, however, a few small suppliers with unique intellectual property and solid revenue that could generate a return. But M&A activity in past years points to a lack of options for the dozens of other smaller providers struggling to stand out. A couple of the more successful smaller players are likely to merge. By pooling their resources, they could improve their prospects, brand and efficiency – perhaps attracting an extra funding boost at the same time. A rollup like this could also help the less-successful small vendors, although we’re not aware of any plans to date.

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