Latest Rumors on Acquisitions

Rumors were always part of the storage industry that loves them. We too.

Buzz comes generally from analysts, mainly financial ones, blogs, Twitter, so-called indiscretions in alleys of computer shows. Some web sites, as macrumors.com, are specialized in this activity.

Last months, there was several rumors like: IBM buying its OEM NetApp; Cisco, IBM, Intel or Oracle acquiring EMC; NetApp getting Quantum; among others.

But three of them
are currently circulating faster the others:

• Brocade acquired by Dell, HP or EMC
• CommVault by Dell, HP or NetApp
• EMC by IBM

Looking at the nearly 900 acquisitions registered in the industry since 1994, a storage company will generally buy another one  for the following five reasons:

1. to complement its portfolio or add missing products or technologies, sometimes coming from a big supplier, often an OEM
2. the possibility to increase its market share with competitive products, sometimes to get a monopoly and increasing prices
3. just a financial deal by an investor firm that likes to buy a firm at a cheap price, structure it differently – notably firing people or cutting the acquisition in several pieces – then for reselling with nice margin; here another case is to buy a public company, transform it in a private one for finally organize a lucrative IPO.
4. to widen channel with an integrator, VAR or distributor
5. being in a decreasing market, to diversify in another one

Brocade by Dell, HP or EMC
For us, Brocade is in the difficult situation to be acquired. The buyer can only be a large storage – or eventually network – firm as Brocade’s market cap (generally not far from the price to be bought) is high: $3.14 billion. Dell, HP or EMC can do it but, following an eventual acquisition, there is the huge risk to lose big Brocade’s customers as the connectivity makers depends largely on its OEMs, representing around two-thirds of its revenues. The top three are EMC, IBM and HP for approximately 50% together, but also Dell for a smaller part. If Dell, HP or EMC integrates the leader in FC connectivity, they will get directors, switches, HBAs, etc., at better prices for their own storage network systems. But they will sooner or later lose the other Brocade’s clients. The three potential buyers are ferociously competing on the same storage market. Each one will then prefers to find another source – Cisco, QLogic, Emulex, Atto, etc. – than Brocade to avoid to enrich an enemy and to be sure that the opponent will not get information on future products integrating new kind of storage connectivity.
Our opinion: few chances by Dell, HP or EMC to try to get Brocade.

CommVault by Dell, HP or NetApp
The situation is about the same but at a lower level. Market cap of public CommVault Systems is smaller, $1.97 billion. The successful Simpana software company has really one big OEM, Dell, representing 23% of global sales during the most recent fiscal year. The bigger reseller is Arrow Enterprise Computing Solutions (25% of total revenues), but this one will probably not be lost by one of the buyers. Then, with much smaller percentages, CommVault sells to HP, HDS and more recently Fujitsu, and also via a the channel through its Partner Advantage program. For NetApp, Syncsort could be an interesting and cheaper acquisition.
Our opinion: more chances, especially by Dell.

EMC by IBM
If this persistent rumor is true, it will be the IT deal of the year. If you consider FileNet as a storage company, bought by Big Blue for $1.6 billion in 2006, the computer giant never put more than $300 million in a storage acquisition. IBM is too proud of its historical presence in storage to flirt with EMC and pull out of its pocket something like $57 billion (market cap) considering its cash being around $11 billion. Also historically EMC is more an acquirer than a target. Furthermore, SEC could discuss a company becoming so powerful in storage for mainframes. For EMC CEO Joe Tucci, it will be a great victory and the insurance to retire with enough money to spend vacations will all his family and as many friends he wants in the most expansive places of the world until the end of his life.
Our opinion: we really doubt.