History (1998): Seagate Pulls Out of Software

Seagate Technology has sold its Network and Storage Management Group (NSMG) to Veritas Softare for $1.6 billion, an impressive price, and more than 9 times NSMG’s sales, which approached $175 million over the past 12 months.

NSMG is one of two operating groups in Seagate Software Inc., which became a subsidiary of Seagate Technology in 1996.

The transaction must be approved by shareholders and is supposed to be completed in January 1999.

According to the San Jose Mercury News, this deal is the 8th-largest acquisition in Silicon Valley history and represents the highest sum ever paid there for a software company. It’s also the second largest acquisition of a software maker, after IBM’s purchase of Lotus in 1995 for $3.5 billion.

For the first six months of its FY ended in June, Veritas, a booming company, had sales of $87.2 million, or 60% more than during the same period the year before, with a comfortable net income of $17.6 million.

Veritas will issue $33 million shares for NSMG’s business.

Once the deal has gone through, Seagate will own 35% of Veritas, whose board will have 2 new directors from Seagate, Steve Luczo and Greg Kerfoot. Terry Cunningham, the current president and COO of Seagate Software, will be president of Veritas, where Mark Leslie will remain on as CEO, and become chairman.

The new outfit will employ approximately 2,300 people, with annual sales of $300 million.

Seagate Software’s second operating group is the Information Management Group (IMG), and one wonders whether Seagate will keep or sell off the bits and pieces of an activity that generated $118 million for the last FY98. IMG offers software for information delivery and analysis (reporting, analytical processing, data mining, etc), while NSMG, built out of several acquisitions, including Arcada, Palindrome, etc, is focused on network and storage management software.

Analysts concur that the 2 businesses to be combined complement one another nicely, with Veritas aligned towards Unix, selling to end users and working with OEMs, while NSMG is more specialized in Windows NT and Novell NetWare, with a customer base of distributors.

The new unit will form a worthy adversary to companies such as Legato Systems, Cheyenne/Computer Associates, IBM/Tivoli, EMC, and so forth.

This pooling of resources should also allow Veritas to develop a multi-environment SAN architecture more rapidly than the others.

Oddly enough, when Steve Luczo, Seagate’s current CEO, was first hired by the HDD manufacturer, it was to launch and develop the new software business the company is now divesting. There was some talk of an IPO, but that became unlikely given the current ricochets of the US stock market.

According to Veritas, this transaction will have no bearing on another acquisition in progress, for TeleBackup Systems.

Veritas Software, located in Mountain View, CA, is a stone’s throw from Silicon Graphics, Sun Microsystems and Adobe.

Initially, in 1982, a start-up called Tolerant Systems was founded in Mountain View, CA, in order to manufacture faulttolerant hardware systems. That venture failed in 1989, but some twenty of its personnel decided to create a new company, this time as Veritas, to work on a contract for AT&T, the creator of the Unix OS, in order to develop a storage management software. Similar accords followed with other major OEMs such as Digital, HP, IBM, Sequent, Sun and Tandem. The company went public in 1993 and decided to extend its product line horizontally, adding new functions, before selling directly to customer. The following year, the software succeeded in convincing Microsoft to incorporate its storage management utilities in Windows NT.

In early 1997, Veritas quietly merged with OpenVision Technologies, a leading backup software company. If Veritas is still fairly unknown, nearly 90% of the world’s 2,000 largest multinationals use its products, even if they don’t know it, since most are integrated in hardware or software from other vendors.

Veritas shareholders did greet the news of the acquisition with much enthusiasm, given that shares of the company plunged in value by as much as 44% on October 6.

This article is an abstract of news published on issue 129 on October 1998 from the former paper version of Computer Data Storage Newsletter.