NetApp to Acquire SolidFire for $870 Million – GeekFluent’s Thoughts

SolidFire logoYesterday, NetApp announced that it had entered into a definitive agreement to acquire SolidFire for $870 Million in an all-cash bid.

SolidFire is a privately-held storage company who makes an All-Flash array based on a scale-out architecture. I’m a big fan of both SolidFire and their Element X operating system (available as a software-only option) — I’ve written about them before.

Below I’ll walk through some aspects of the deal and offer my opinions and speculations. I promise they’ll be worth at least as much as you’re paying for them. You can read SolidFire’s official take on it here. My take is completely unofficial.

Why This Exit Path?

When a tech company is ready to move from the “startup” phase into the “time to be a real company and start growing” phase, there are (generally) two different paths it can take: issue an Initial Public Offering (IPO) to raise the funds needed for the growth, or get acquired by a larger, already-established company. The two phases are very different phases and often require a change in thinking. Many of today’s successful companies made it through this change by changing management. A CEO who is a successful startup leader won’t necessarily have the skills required of a successful growth leader, and vice versa.

SolidFire had been getting ready for an upcoming IPO. Why shift gears and go this path? Two reasons.

First, the Pure Storage IPO was not the resounding success that they had hoped or that some folks had predicted it would be. It appears that the market isn’t ready to put a lot of cash into YAAFA (Yet Another All-Flash Array) right now.

Second, if you’re interested in acquiring another company, it’s much easier to acquire them while they’re private. Once they’ve gone public, there are many more hoops to jump through. I imagine that any companies who’d ever thought that SolidFire might be an attractive acquisition decided it was time to make a move as soon as they heard that SolidFire was preparing for an IPO.

The Rumors

Leading up to yesterday’s announcement, there were rumors that there were other companies also interested in SolidFire. They included:

  • Cisco
  • Samsung Ventures (one of the investors in SolidFire)
  • EMC

Any of these companies could likely have offered more than $870 Million for SolidFire. In fact, the rumor was that the purchase price was actually going to be anywhere from $1.2 to 1.4 Billion. So why weren’t there bigger offers?

I speculate that Cisco is hesitant to enter directly into the storage market. They’re still stinging a little after their acquisition of WhipTail, YAAFA company that didn’t really have anything to differentiate itself from the others out there. Cisco rebranded them as Invicta and eventually shut down that entire business unit.

Both Cisco and SolidFire have confirmed that they were in discussions to form some sort of partnership (maybe something like VCE or FlexPod?), but that both parties walked away after they couldn’t agree upon the terms of such a partnership.

As far as Samsung Ventures goes, I speculate that they viewed that acquiring SolidFire could potentially lead to a greater return on their investment, but over a much longer term. Once there was a cash offer on the table right now, I believe they elected for the immediate return rather than a potential one at some point in the future.

So while I can see why neither Cisco nor Samsung Ventures offered a more competitive bid for SolidFire, but I’m less clear on why EMC didn’t. They certainly have the cash reserves to make a higher bid, and have done so it the past to prevent NetApp from acquiring a company. You can argue that EMC didn’t really need Data Domain — unless they wanted their data deduplication intellectual property. That said, they’ve turned that acquisition into a successful profit generator.

Why not do the same here? Two possible reasons that I can think of.

With their own upcoming acquisition about to happen, EMC management may have found their hands tied by their new owners. Dell was planning on using some of those cash reserves to pay off the huge debt they’re taking on for the EMC takeover and may not want to see any of it spent elsewhere. EMC appears to be undergoing some other forms of cost-cutting at the moment, so there could be something to it. Also, EMC and VMware recently announced they were spinning off VirtualStream as a joint venture which made the already-complex takeover of the Federation even more difficult to track. More recently, it’s now an EMC-only venture, so it’s possible there was a wrist-slapping over that.

Another possibility is that, given their emphasis on how central their own All-Flash array, XtremIO, is to their company (despite their continuing to offer at least two other All-Flash solutions), acquiring another All-Flash solution may have been viewed as either unnecessary, or as a weakening of their own messaging.

Who Wins?

Who are the big winners in this acquisition?

For starters, the owners and investors in SolidFire just got a very nice payday, so they win.

SolidFire had made great headway in selling their storage to Cloud service providers. With the service-level agreements (SLAs) that providers need to meet, the combination of scale-out All-Flash with the Quality of Service (QoS) features that are built-in to Element X, SolidFire was a perfect fit for them. These great SolidFire customers will now be NetApp customers, so NetApp wins.

What Happens Next?

Well, the future of SolidFire and Element X is now in NetApp’s hands. Since adding YAAFA to their portfolio will further confuse their own messaging in that area, they’ll likely try to simplify things in one of two ways.

The Way I Hope They’ll Go

NetApp could keep SolidFire running as a separate business unit, and sell it as a separate product, keeping Element X separate from ONTAP and WAFL. They could then start to de-emphasize their other All-Flash options, and work on some data migration tools to allow for easy movement of data between SolidFire and FAS arrays. When perfected, such tools would allow NetApp to offer SolidFire as another storage tier.

The Way I Hope They Don’t Go

NetApp could drop SolidFire as a separate line and work to incorporate the Element X intellectual property into ONTAP. Personally, I think this would be a disaster.

It took NetApp years to incorporate the Spinnaker acquisition into ONTAP, and even now it’s not really all there — at least not at the level of the original promises.

ONTAP is dependent upon both WAFL and RAID-DP, neither of which is (in my opinion) a good fit for All-Flash.

Going this way would likely spell the end of Element X. Remember Topio?

In Conclusion

Congratulations to the folks at SolidFire. You’ve made a great product and you deserve a good payoff for it. I hope you’ll get to continue to develop and grow it.

Congratulations to the folks at NetApp. You’ve made a great acquisition. I hope you’ll treat it with the care it deserves.

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