Extreme’s not horsing around, buys Brocade’s datacenter networking assets 

Contact: Jim Duffy 

As it stalks one horse, acquisition-hungry Extreme Networks has saddled up another. The suddenly feisty enterprise networking vendor has picked up Brocade’s datacenter business – another piece of Brocade that acquirer Broadcom is not interested in owning. Extreme is benefiting from that lack of interest, paying just a fraction of the asset’s annual revenue.

Even for a bargain shopper like Extreme, the deal comes at a steep discount. According to 451 Research’s M&A KnowledgeBase, Extreme has made just five acquisitions in the past 15 years. Three of them have come in the past seven months. The company recently bought Avaya’s networking business ($100m) and Zebra Technologies’ WLAN unit ($55m). In both transactions, it valued the target at about 0.5x revenue, the same multiple it paid in its 2013 purchase of Enterasys.

Extreme will pay $35m upfront and $20m in deferred payments for Brocade’s VDX, MLX and SLX routing and switching assets, plus its analytics software. Although revenue from the Brocade assets have declined amid the uncertainty over who might ultimately own them, the unit is expected to add $230m to Extreme’s top line in its next fiscal year. This deal, combined with its weeks-old stalking-horse bid for Avaya’s assets, could push its annual revenue beyond $1bn and make Extreme the third-largest wired and wireless enterprise networking equipment provider behind Cisco and HPE.

The divestiture comes as Broadcom is looking to close its acquisition of Brocade’s Fibre Channel business, while shedding the target’s networking equipment assets – Brocade’s Ruckus Wireless WLAN unit was snagged by ARRIS a few weeks ago. Today’s transaction is contingent upon the close of Broadcom’s purchase of Brocade, which is expected in July. Finalization of Extreme’s buy is expected 60 days after that. In addition to the cash consideration, Broadcom is already Extreme’s largest supplier and the acquirer says it will increase its current $100m annual spending with Broadcom.

Customer overlap was minimal, as Brocade’s datacenter business was targeting large enterprise core datacenters with more than 2,000 physical servers, while Extreme was concentrating on the campus edge (WLAN and access switching, and fewer than 2,000 servers). The two have joint customers, for example, that use Brocade in the datacenter and Extreme at the WLAN edge. Nonetheless, Extreme says it will obtain 6,000 customers using Brocade’s VDX, MLX and new SLX routers and switches.

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