Contact: Brenon Daly
NetApp’s first acquisition in more than a year and a half comes with a bit of a twist. The storage giant is only a few months removed from a period in which hedge fund Elliott Management was stirring for changes at the company. Having largely settled with the activist investor, NetApp has now picked up a division carved out from Riverbed Technology, which is currently being targeted by Elliott.
Terms call for NetApp to pay $80m for Riverbed’s SteelStore cloud storage gateway. The size of the business, which was formerly known as Whitewater, wasn’t disclosed. However, our understanding is that it was generating less than $10m in sales. Only 26 employees are going over to NetApp as part of the deal.
SteelStore was part of Riverbed’s broader portfolio expansion, an effort that hasn’t really paid off for the company. Some 70% of Riverbed’s revenue still comes from its core WAN optimization unit. The slowdown in that business is one of the main drags on Riverbed, which recently forecasted that sales in the current quarter may be flat.
However, according to our understanding of the transaction, it wasn’t driven by Riverbed, which is currently exploring ‘strategic alternatives,’ looking to jettison a non-core business. Instead, we gather that NetApp went after the division. Neither side used a financial adviser.
That dynamic may help explain the relatively rich valuation of the deal. (Though we would note that both EMC and Microsoft also paid princely multiples in their purchases of cloud storage gateways.) Also, price-to-sales multiples tend to get exaggerated by companies posting only tiny revenue.
And to be clear, virtually all of the cloud storage gateway startups are generating tiny sales. In a recent study of IT professionals at midsized and large enterprises conducted by TheInfoPro, a service of 451 Research service, only 4% of participating companies had deployed cloud storage gateways – a figure that was essentially unchanged from a similar TIP study in 2013. (See our full report .) With the cloud storage market still very much in its early stages, we would argue that a gateway startup is more at home in a storage vendor like NetApp than in a networking provider like Riverbed.
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