Tag: NetApp

Storage sector M&A holding steady

Ben Kolada

Contact: Ben Kolada, Henry Baltazar

In its eighth storage play, IBM announced last week that it is acquiring data compression vendor Storwize. The move, which came quickly on the heels of Dell’s purchase of data de-duplication provider Ocarina Networks, brings the number of storage deals we’ve tallied in 2010 to 19. That’s roughly on par with the volume of storage transactions in the same period last year.

Of course, deal flow in the sector last year was dominated by a bidding war over Data Domain, which sold to EMC for $2.3bn after NetApp put the data de-dupe specialist in play but then got topped. We would note that EMC – the most active acquirer in the storage industry, having picked up some 15 storage companies over the past eight years – has been out of the storage market since it bought Data Domain. However, the storage giant may figure into the industry’s most recent deal. What do we mean?

Big Blue’s purchase of Storwize appears to be a reaction to EMC’s announcement in May that it was adding compression to its midrange Clariion and Celerra platforms. (The Storwize deal was first rumored in June, just after EMC’s announcement.) Storwize is unique in the storage space because it offers real-time data compression of up to 80%. Further, my colleague Henry Baltazar claims that IBM has already been working with Storwize for about a year. Storwize’s appliances run on System x servers, which Big Blue points out should ease the integration process – and help it to match the competitive moves by rival EMC.

NetApp: Barenaked savings

Brenon Daly

Contact: Brenon Daly

What do the Barenaked Ladies and SnapMirror for Open Systems have in common? Well, both have been canceled recently by NetApp in a bid to save money as growth rates at the storage giant continue to head south. The company is currently more than halfway through its fiscal year, which wraps at the end of April, and its projected growth rate of 9% is shaping up to be just half the level it was last year (18%), which was half the level it was the year before that (36%). And given the economic environment, estimates may well decline again between now and when it actually reports results.

Like many companies facing the current recession, NetApp’s answer has been to cut costs. In October, it scratched plans for its user conference, NetApp Accelerate (the Barenaked Ladies had been booked to play one night at the event, which was slated for February). And then last week, NetApp said in an SEC filing that it was shuttering the SnapMirror for Open Systems product line. It will take a charge of as much as $20m (roughly two-thirds of that as a straight write-down and one-third for possible payments for facilities closures and severance agreements).

SnapMirror came with NetApp’s pricey acquisition of Topio in November 2006. The company paid $160m for Topio, which we understand was generating less than $10m in sales. The curtain will fall on SnapMirror before the end of NetApp’s fiscal year, which should help its cost structure for the year. NetApp could certainly use a boost in this area. The company runs at just a 10% operating margin, and has seen the increase in operating expenses outstrip the increase in sales during the first two quarters of its current fiscal year.

Select NetApp acquisitions

Date Target Deal value Rationale
January 2008 Onaro $105m SAN management software
November 2006 Topio $160m Disaster-recovery software
June 2005 Decru $272m Storage security
November 2003 Spinnaker Networks $300m High-end storage

Source: The 451 M&A KnowledgeBase

Try, try again — then liquidate

Brenon Daly

Born from the ashes of a burned-out company, agami Systems may well have landed back in an ash heap. Several reports have indicated the NAS storage specialist wound down operations recently. (We were unable to raise anyone in several calls to their Sunnyvale, California, headquarters.) Just before agami emerged from stealth three years ago, we noted that the company’s core IP – along with a pair of primary VCs and handful of employees – came from NAS startup Zambeel. That company flamed out in 2003, after burning through some $72m in funding. (For its part, agami incinerated about $85m, which included $45m raised earlier this year.)

If indeed agami has gone the way of Zambeel, we highly doubt the sale of agami assets (if that comes) will go the way of Zambeel’s assets. Having lost now on both go-rounds with this technology, Kleiner Perkins Caufield & Byers and New Enterprise Associates probably aren’t interested in stepping in for a third time.

Still, there’s undoubtedly some interesting technology at agami, particularly for block-level vendors that have ambitions for their own NAS products. For instance, Dell, which recently made a significant push into storage, might want to look at agami’s IP. The same is probably true for Compellent Technologies, which has a heap of money from its IPO last year, and for fast-growing LeftHand Networks, a privately held company with some 3,300 customers.

Meanwhile, NetApp, which agami sought to undercut on price, might want to do a ‘buy & bury’ to knock out any future threat. (Keep in mind that NetApp has done graveside deals for NAS technology in the past, buying the patent portfolio of Auspex five years ago during a bankruptcy auction.) In any case, whoever picks up the bits of agami that come up for sale is likely to get a bargain. In fact, we’d be surprised if agami garnered even one-tenth of the $85m that went into it over the past three years.

Selected NAS deals

Date Acquirer Target Price
Sept. 2007 Sun Microsystems Cluster File Systems undisclosed
August 2007 F5 Networks Acopia $210m
Nov. 2003 NetApp Spinnaker $300m
June 2003 NetApp Auspex (patents) $9m

Source: The 451 M&A KnowledgeBase