Riverbed buys Zeus, but shares go to Hades

Contact: Brenon Daly

Announcing the largest deal in its history, Riverbed Technology said it will hand over $110m in cash for Zeus Technology in an effort to broaden its application performance portfolio. Zeus, which sells software for load balancing and traffic management, generated about $12m in revenue over the last year and is expected to contribute some $20m in sales for the coming year. That means Riverbed is paying nearly 10 times trailing sales for Zeus, and that’s not including a potential $30m earnout for the UK-based startup. (Fellow UK-based firm Arma Partners advised Zeus on the sale.)

In addition to being a rather richly valued purchase, the acquisition of Zeus also effectively doubles the amount that Riverbed has spent, collectively, on M&A in its history. The deal will likely bring Riverbed more deeply into competition with the main application delivery control vendors, including F5 and Citrix.

From our perspective, we might note that it’s a good thing Zeus is taking its payment in cash. Why? Riverbed stock lost nearly a quarter of its value on Wednesday. (The WAN traffic optimization provider reported a bit of softness in sales in Europe for the second quarter.) The decline erased all of Riverbed’s gains for 2011, but the stock is still twice the level it was at this time last year.