Tim Mueller’s Transaction Analysis: New IT M&A Deals Jan 23

HPE To Acquire SimpliVity

Financial Information*

Enterprise Value: $650 million
EV/Revenue: 6.5x

Transaction Facts

  • Hewlett Packard Enterprise (NYSE: HPE) announced that it signed a definitive agreement to purchase hyper-converged infrastructure startup SimpliVity for $650 million in cash, subject to adjustments.
  • This announcement concludes a series of high-profile announcements and speculations regarding the future of the company — since its founding in 2009, it has raised approximately $275 million.
  • Within 60 days of the close of the deal, scheduled for the second quarter of HPE’s FY 2017, HPE will release its first SimpliVity-branded hyper-converged appliance.
  • The acquisition is expected to be accretive within HPE’s first full fiscal year following the closing of the transaction.

In tighter market, fewer opportunities

  • Shock Value: Buoyed by hyperconvergence’s attractive promise, SimpliVity has enjoyed significant attention and investment, culminating in a Series D round that raised $175 million at a valuation of more than $1 billion. At one point last year, media reports suggested HPE was considering a bid as high as $3.9 billion – a far cry from this deal’s ultimate value of $650 million.
  • IP-No: The prospect of a successful public exit became increasingly scarce as the technology IPO market dried up, with technology stocks instead turning to private equity or strategic acquisition. Hyperconvergence leader Nutanix (Nasdaq:NTNX) is the exception that proved the rule – despite a strong initial pop of 131 percent, the company today trades near $28, down 40 percent from its high of $46.78 per share.
  • Troubled Waters: Despite its recognition in Gartner’s Magic Quadrant report and other awards, there were indications that the company was undergoing some difficulties. Media reports detailed three rounds of layoffs in 2016, ostensibly to cut costs for a potential process.
  • Competition Grows: For HPE, the deal brings a recognized leader in a fast-growing space, as well as the opportunity to be more focused on product (furthering the company’s ongoing transformation into a pure-play vendor). The deal also puts significant pressure on competitors including Cisco, Dell and Lenovo.

For more information about this transaction, click here to read the press release.

Tim Mueller was not the advisor in this transaction.

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