History 2002: Legato to Buy OTG Software

Among storage software companies, neither Legato nor OTG had managed to attain a critical mass that would allow them to take on such giants as Veritas, Computer Associates and EMC.

A merger of the 2 firms should push the combined companies well beyond $300 million this year, providing greater visibility.

The acquisition of OTG Software by Legato Systems was to be completed for an amount initially estimated at $403 million, but which will ultimately depend on the evolution of both firms’ stock prices, in a cash ($83 million) and stock transaction.

Under the definitive agreement, OTG’s shareholders will own around 21 % of the combined companies.

The 2 firms know each other well, since Legato has been licensing OTG’s DiskTender software for several years now.

Both are unprofitable and are involved in storage management software, but Legato is oriented more toward backup and recovery, while OTG concentrates more on HSM and archival of data such as emails and media files.

“There’s only one real overlap and it’s in a Unix HSM space,” said Bobby Young, Legato’s chief solutions officer in a conference call organized just after the announcement of the acquisition.

The 2 companies also have several customers in common.

“I think there’s about a 65% customer overlap at this point of the time,” said Legato’s CEO David Wright during the same call.

OTG, which favors indirect sales, has little overseas presence, while Legato, with a large chunk of direct sales, operates in 23 countries throughout the world.

The latter suffered an abrupt halt in growth 2 years ago due to accounting problems, and fell heavily in the red. A return to profitability, however, is not expected before 2H02.

The company seemed a likely candidate for an acquisition, working as it does in a market segment that is highly coveted by much bigger fish, despite the fact that major computer manufacturers also had an interest in seeing Legato remain independent, to avoid being forced to deal only with Veritas.

In the end, however, Legato chose to play the big fish, opting for external growth – assuming the deal is approved, as expected, by shareholders in 2Q02.

This article is an abstract of news published on issue 170 on March 2002 from the former paper version of Computer Data Storage Newsletter.