Tag: Compellent

The year of the privately held storage supplier?

Contact: Simon Robinson

The storage M&A market is expected to favor smaller private providers this year, as recent activity has reduced the number of available midsize public targets. Indeed, in the past 24 months, Data Domain, 3PAR, Isilon Systems and Compellent have all been taken off the market. And buyout speculation caused by this recent spate of activity has bloated valuations at remaining public firms, such as CommVault, making them less likely to be acquired next.

But while recent public storage acquisitions may have halted the sales of their public peers, they may have actually benefited private suppliers. For example, EMC’s reach for Isilon highlighted the growing requirement for high-scale storage systems in markets where the exponential growth of highly rich – or ‘big’ – data is a key pressing challenge. Indeed, that deal could be important in refocusing attention on the remaining privately held players.

We took a look at several of the remaining private targets in a recent Sector IQ and noticed that would-be buyers still have several options to choose from. Though the IPO window has been closed for a couple of years, there are many attractive storage specialists that are fairly mature on both the product and go-to-market fronts, and a closer examination reveals a number of storage system specialists that were formed in the late 1990s that are still making headway today. Click here for our full report on potential targets in the storage sector.

Dell’s less than ‘compellent’ bid

Brenon Daly

Contact: Brenon Daly

In what would be the third significant acquisition of a publicly traded storage vendor in the past four months, Dell said Thursday that it would offer $27.50 in cash for each share of Compellent (see our full report). The storage company reported 32.8 million shares (on a diluted basis) in its latest quarterly filing, giving the proposed transaction an equity value of $902m. (The final share count would likely be higher due to options vesting and so on.) But if we assume an equity value of $900m, the enterprise value of the deal would come in at roughly $840m. That’s 5.4 times Compellent’s sales of $155m in 2010 and 4.3x its projected 2011 sales of $195m. We would note that valuation is less than half the level commanded in the recent takeouts of both 3PAR (a bidding war pushed the level to 11.2x trailing sales) and Isilon Systems (12.8x trailing sales).

Of course, valuation is very much the issue in this ‘take-under.’ Dell’s bid of $27.50 compares to Compellent’s previous closing price of $33.65. Clearly, much of that advance came as a result of acquisition speculation, as Wall Street watched other storage vendors of roughly the same vintage get taken off the market. On its own, Compellent started the year trading at roughly $23, dropped to about $12 after whiffing its first quarter, and only got back above $20 in late October. Shares closed Thursday at $29.04 (on volume that was seven times heavier than average), indicating that investors aren’t necessarily willing to sell their shares to Dell at a lower price than they can get from one another.

Changing channels

Brenon Daly6 Comments

In the hyper-competitive storage market, it seems that one vendor’s pain is another vendor’s gain. We’ve heard from three market sources recently that Dell’s largest-ever acquisition — its $1.4bn purchase of EqualLogic — has hit some difficulties around defections and uncertainties from the SAN vendor’s existing channel partners. Resellers who pushed EqualLogic’s offering in the past are worried about being crushed by Dell’s powerful direct-sales machine, as has happened to some of Dell’s ‘partners’ in the past.

Based on the recent numbers posted by rival SAN vendor Compellent Technologies, there may be something to those concerns. Compellent, which recently signed up its 1,000th customer, said second-quarter sales surged 74% to $21m — which is about what they were for the first two quarters of 2007 combined. (The performance, along with the forecast for profitability for the rest of the year, helped spark a 20% rally in the company’s shares over the past month.) At a recent investment banking technology conference, Compellent CEO Phil Soran told us he’s looking to poach EqualLogic’s channel partners. We’ve heard similar plans coming from rival storage player Lefthand Networks.

How well Dell is able to balance the sales channels for EqualLogic will go a long way toward determining how much of a boost the acquisition will give to its emerging push into storage. Already, the return on EqualLogic is made more challenging by the fact that Dell bought it literally at the top of the market. The day that Dell announced the acquisition, the Nasdaq hit a level it hadn’t seen since early 2001. (The index is currently off 14% since then, after having dropped as much as 23% from its early-November highs.) To make its high-priced acquisition of EqualLogic pay off, Dell is going to have to work hard to keep its new SAN rivals from siphoning off channel sales.