Tag: Par

A hoarse auctioneer for 3PAR?

Brenon Daly

Contact: Brenon Daly

The back-and-forth bidding for 3PAR moved higher again Friday, as the counteroffer to the counteroffer pushed the value of the high-end data storage vendor to $2bn. In the latest move, Hewlett-Packard lobbed a bid of $30 for each share of 3PAR, topping its offer from Thursday of $27 per share that had been matched by Dell. If 3PAR opts for HP’s bid, Dell has three days to come back with an offer of its own, according to terms. Dell, which opened the process 10 days ago with a bid of $18 per share, has already matched two efforts by HP to derail the deal.

As is pretty much always the case when would-be buyers with deep pockets go against each other, the price of the target company moves higher. (It’s fundamental supply-and-demand economics, after all.) Yet in the case of 3PAR, we’re not talking bids that are sweetened with a teaspoon or two of sugar – we’re talking cups of the stuff. (To recap the investment banks that are helping to advise their clients on how much sugar to dole out: Qatalyst Partners is banking 3PAR, while Credit Suisse Securities is banking Dell and JP Morgan Securities is banking HP.)

The latest offer values 3PAR at basically $830m higher than the opening takeout valuation, which was already the highest the storage company had ever seen. (In fact, Wall Street valued 3PAR at less than $800m before all this bidding started. Shares had basically bounced around $10 each for most of the year.) HP’s offer gives 3PAR an equity valuation of $2bn, two-thirds higher than Dell’s initial bid that gave it a $1.25bn equity valuation. For those wondering about the ‘price discipline’ at the two suitors, we would note that the going rate for 3PAR is now 10 times trailing sales.

Why wouldn’t HP jump the McAfee bid instead?

Brenon Daly

Contact: Brenon Daly

If we had to guess about Hewlett-Packard making an uncharacteristic move and jumping an announced transaction, we would have thought the company would go after McAfee rather than 3PAR. After all, HP has a giant hole in its security portfolio (we might describe it as a ‘McAfee-sized’ hole), while it’s already pretty well covered on the storage side, even if much of its offering is a bit long in the tooth.

Yet that isn’t the way it’s playing out. The recently decapitated company offered $1.7bn earlier this week for 3PAR, adding roughly $410m, or 33%, to the proposed price of the high-end storage vendor. Meanwhile, McAfee’s planned $7.8bn sale to Intel, announced last week, continues to track to a close before the end of the year. (We would note that McAfee is being valued at 3.4 times trailing sales, exactly half the level of 3PAR following HP’s bumped bid, which took the valuation to 7.6x trailing sales.)

HP’s topping bid for 3PAR appears to be a fairly defensive move. For starters, there’s the matter that 3PAR would overlap more than a little bit with its existing core storage offering called StorageWorks Enterprise Virtual Array. Betting on an acquired property to replace – or at the very least, refresh – the heart of a company’s current offering is a risky proposal. On top of that, 3PAR would require a new architecture, rather than just running on top of HP’s existing hardware like its other software-based storage acquisitions (PolyServe, IBRIX and Lefthand Networks).

All in all, looking to derail Dell’s offer for 3PAR appears to be at odds with much of HP’s previous strategy and rationale around storage. And while it pursues that deal (cost what it may), HP passes on McAfee, a one-of-a-kind security asset that would instantly make it much more competitive with IBM, EMC and Cisco Systems. If HP has sincere aspirations about outfitting the next generation of datacenters, we might suggest that it needs to actually own its intellectual property (IP) for security.

So far, however, HP has been content with just OEM arrangements to cover itself for security. (Notably, it has extracted a fairly one-sided agreement with Symantec for consumer anti-malware protection.) And even though buying McAfee would mean an unraveling of a number of those arrangements, we would note that reality isn’t preventing HP from making its bid for 3PAR. Remember that HP currently has an OEM arrangement with Hitachi Data Systems for a high-end offering like 3PAR. Yet it’s prepared to pay – and pay a lot of money – to own the IP itself. Couldn’t the same rationale be used for McAfee?

There’s only one 3PAR

Brenon Daly

Contact: Brenon Daly

Let’s see, where have we heard this before? A storage company with hundreds of millions of dollars in revenue finds itself in a billion-dollar bidding war between two tech giants, advised in the process by high-end boutique Qatalyst Partners. Last summer, scarcity value drove the price of Data Domain; today it’s 3PAR.

Looking to trump Dell’s existing agreement for 3PAR, Hewlett-Packard on Monday lobbed a topping bid for the high-end storage provider. HP, advised by JP Morgan Securities, is offering $24 for each share of 3PAR, giving the proposed transaction an enterprise value of $1.56bn. (That’s according to our math, compared to the $1.66bn that HP gives its bid.) In any case, the offer is some $380m, or 33%, richer than Dell’s initial bid. Recall that Dell’s offer of $18 valued 3PAR at the highest level ever for the stock.

One interesting observation about HP’s topping bid: it is exactly the same percentage (33%) that EMC had to hand over for Data Domain, which had agreed to sale to NetApp. Of course, this is HP’s first counter, while EMC had to bump its own bid. (Initially it offered $30 for each Data Domain share, but ultimately paid $33 per share when it closed the deal in July 2009.) Of course, there was little hope of NetApp matching EMC in a bidding war for Data Domain. In the case of 3PAR, however, rivals Dell and HP are on much closer financial footing. Terms of Dell’s original agreement with 3PAR call for a $53.5m breakup fee

Dell’s not-so-identical twin storage deals

Brenon Daly

Contact: Brenon Daly

From an investment banking perspective, both EqualLogic and 3PAR started out and finished their lives in much the same way. The two storage vendors filed to go public within a week of one another back in August 2007, and – pending the close of 3PAR’s sale – both will end up inside Dell. Yet while the final destination is the same, the two vendors’ not-so-parallel tracks to Round Rock, Texas, underscore the fact that the tech M&A market, as well as the capital markets, still have a long way to go to recover from the Credit Crisis.

Consider this: In the sale announced Monday, 3PAR garnered just half the multiple that fellow storage vendor EqualLogic got in its sale to the same buyer, at least based on one key metric. 3PAR sold for 5.6 times trailing sales, while EqualLogic went for 12x trailing sales. We would chalk up the eye-popping premium for EqualLogic mostly to the fact that Dell had to effectively outbid the public market to prevent the company from going public. More to the point, Dell had to outbid a bull market, as the Nasdaq had tacked on 20% in the year leading up to its purchase of EqualLogic in November 2007.

As any company – including 3PAR and Dell – can attest, the bull market ended abruptly and painfully just days after the EqualLogic trade sale. So now we’re left with a market where Dell can offer the highest-ever price for 3PAR shares (representing a staggering 87% premium) and still get a ‘half-off discount’ on valuation compared to its earlier billion-dollar storage deal. But then Dell knows all about discounts over that time period. The company’s market cap has been cut in half (to $25bn from $50bn) from the day it announced its EqualLogic acquisition to Monday’s announcement of the 3PAR purchase.

RainStor, the structured data retention and compression startup that recently renamed itself from Clearpace, has raised $7.5m in series B funding. The round brought in two new investors – Storm Ventures and data integration software specialist Informatica (which licenses RainStor’s technology as part of its Applimation data archive suit <!– /* Font Definitions */ @font-face {font-family:”Cambria Math”; panose-1:2 4 5 3 5 4 6 3 2 4; mso-font-charset:0; mso-generic-font-family:roman; mso-font-pitch:variable; mso-font-signature:-1610611985 1107304683 0 0 159 0;} @font-face {font-family:Calibri; panose-1:2 15 5 2 2 2 4 3 2 4; mso-font-charset:0; mso-generic-font-family:swiss; mso-font-pitch:variable; mso-font-signature:-1610611985 1073750139 0 0 159 0;} @font-face {font-family:Verdana; panose-1:2 11 6 4 3 5 4 4 2 4; mso-font-charset:0; mso-generic-font-family:swiss; mso-font-pitch:variable; mso-font-signature:536871559 0 0 0 415 0;} /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-unhide:no; mso-style-qformat:yes; mso-style-parent:””; margin:0in; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:”Times New Roman”,”serif”; mso-fareast-font-family:Calibri; mso-fareast-theme-font:minor-latin;} a:link, span.MsoHyperlink {mso-style-noshow:yes; mso-style-priority:99; color:blue; mso-text-animation:none; text-decoration:none; text-underline:none; text-decoration:none; text-line-through:none;} a:visited, span.MsoHyperlinkFollowed {mso-style-noshow:yes; mso-style-priority:99; color:purple; mso-themecolor:followedhyperlink; text-decoration:underline; text-underline:single;} p.bodytxt02, li.bodytxt02, div.bodytxt02 {mso-style-name:body_txt_02; mso-style-unhide:no; mso-margin-top-alt:auto; margin-right:0in; mso-margin-bottom-alt:auto; margin-left:0in; mso-pagination:widow-orphan; font-size:12.0pt; font-family:”Times New Roman”,”serif”; mso-fareast-font-family:Calibri; mso-fareast-theme-font:minor-latin;} .MsoChpDefault {mso-style-type:export-only; mso-default-props:yes; font-size:10.0pt; mso-ansi-font-size:10.0pt; mso-bidi-font-size:10.0pt;} @page WordSection1 {size:8.5in 11.0in; margin:1.0in 1.0in 1.0in 1.0in; mso-header-margin:.5in; mso-footer-margin:.5in; mso-paper-source:0;} div.WordSection1 {page:WordSection1;} –>
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by Brenon Daly

From an investment banking perspective, both EqualLogic and 3PAR started out and finished their lives in much the same way. The two storage vendors filed to go public within a week of one another back in August 2007, and – pending the close of 3PAR’s sale – both will end up inside Dell. Yet while the final destination is the same, the two vendors’ not-so-parallel tracks to Round Rock, Texas, underscore the fact that the tech M&A market, as well as the capital markets, still have a long way to go to recover from the Credit Crisis.

Consider this: In the sale announced Monday, 3PAR garnered just half the multiple that fellow storage vendor EqualLogic got in its sale to the same buyer, at least based on one key metric. 3PAR sold for 5.6 times trailing sales, while EqualLogic went for 12x trailing sales. We would chalk up the eye-popping premium for EqualLogic mostly to the fact that Dell had to effectively outbid the public market to prevent the company from going public. More to the point, Dell had to outbid a bull market, as the Nasdaq had tacked on 20% in the year leading up to its purchase of EqualLogic in November 2007.

As any company – including 3PAR and Dell – can attest, the bull market ended abruptly and painfully just days after the EqualLogic trade sale. So now we’re left with a market where Dell can offer the highest-ever price for 3PAR shares (representing a staggering 87% premium) and still get a ‘half-off discount’ on valuation compared to its earlier billion-dollar storage deal. But then Dell knows all about discounts over that time period. The company’s market cap has been cut in half (to $25bn from $50bn) from the day it announced its EqualLogic acquisition to Monday’s announcement of the 3PAR purchase. e