What’s a Smarsh to do?

Contact: Ben Kolada

Depending on which way the bidding goes for systems management vendor Quest Software, Smarsh’s future could change considerably. The compliance-focused archiving startup announced in February that it sold a majority of its equity to Quest, just three weeks before its newfound parent became the center of an ongoing bidding war. But one side’s plans for Quest post-close may not include Smarsh.

After the closing bell Tuesday, Vector Capital joined Insight Venture Partners and Quest’s management in announcing that they had increased their offer for Quest to $25.75 per share, for a total deal value of about $2.24bn by our calculations. The revised bid tops a competing offer from an unidentified suitor – widely believed to be Dell – that was announced last week.

While all eyes are on Quest at the moment, the continued bidding casts a shadow over who will ultimately own Smarsh. Right now, the company is seen as more of a Quest investment rather than an operating business unit.

If Insight and the rest ultimately win Quest, Smarsh could be considered just another portfolio company for the private equity firms. However, if that unidentified bidder is Dell, and Dell ultimately wins, Smarsh could soon be cast off, since Dell already offers archiving products competitive to Smarsh. In 2008, Dell acquired MessageOne – a direct rival to Smarsh – for a whopping $155m. Dell also has its own archive storage system, the DX platform, based on software OEMed from Caringo. (However, we’d note that neither of these initiatives seems to have gone too far yet.)

Rather than worry about would could happen in the future, Smarsh is keeping itself busy in the present. The company has announced two acquisitions in the past month. In May, Smarsh bought Web content-archiving vendor Perpetually.com and on Tuesday it announced the purchase of compliance-focused website hoster AdvisorSquare, which targets the finance vertical. The deals should ramp up the company’s growth rate for 2012 and 2013. We estimate that Smarsh generated $20m in revenue last year, or about 30% year-over-year top-line growth.


Date Event
February 14, 2012 Quest Software acquires 60% stake in Smarsh.
March 9 Insight Venture Partners and Quest management offer to buy Quest for $2bn.
May 16 Smarsh picks up Perpetually.com.
June 14 Unidentified bidder offers approximately $2.22bn for Quest.
June 18 Smarsh acquires AdvisorSquare from Symantec.
June 19 Vector Capital joins Insight and Quest management to buy Quest for approximately $2.24bn.

Source: The 451 M&A KnowledgeBase

For more real-time information on tech M&A, follow us on Twitter @MAKnowledgebase.

To scale or not to scale

Contact: Ben Kolada, Brenon Daly

For businesses that both had ‘scale’ in their name, neither MaxiScale nor ParaScale got very big. Nor did they get very big exits in their recent sales. In the crowded cloud storage market – dominated by multibillion-dollar incumbents IBM, EMC and HP – startups have only a short time to prove themselves to potential customers. We suspect that both MaxiScale and ParaScale shared similar fates because VCs are becoming quicker to pull the plug on storage investments that aren’t lining up customers.

That’s particularly true for MaxiScale, which we covered a year ago as it emerged from stealth. While ParaScale chalked up some customer wins, rumors have it that MaxiScale was unable to actually generate any revenue from its product. The bleak outlook forced the company to sell its assets last week to Overland Storage at what we expect was a fraction of the $25m that investors poured into the firm. We doubt that Overland paid much more than $5m for the acquired MaxiScale assets.

However, not all cloud storage startups are landing on the scrap heap. While MaxiScale and ParaScale were unable to secure lifeline funding, rival Caringo raised a fresh $5m round in July. In the past year, the company claims to have increased its customer count from 150 to more than 400, and is set on reaching profitability by the first half of next year. We don’t consider the firm an acquisition target just yet, but if it continues to do well, it could draw some interest down the road.