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Toshiba, HPE head 2017 storage acquisitions

Storage acquisitions in 2017 included Hewlett Packard Enterprise's buys of SimpliVity and Nimble Storage, and Toshiba's move to sell off its memory business.

The planned $17.7 billion sale of Toshiba's memory business that created lots of headlines in 2017 has yet to close, but there were other completed storage acquisitions that rocked the enterprise data storage world during the year.

Most notably in 2017 storage acquisitions, Hewlett Packard Enterprise (HPE) started the year with a $650 million purchase of hyper-convergence pioneer SimpliVity. Then, HPE beefed up its storage array portfolio in March with the $1.2 billion acquisition of Nimble Storage to complement its 3PAR flash and hybrid product line.

Other 2017 storage mergers and acquisitions included Cisco's $320 acquisition of hyper-converged partner Springpath and Western Digital's pick up of Tegile Systems. Investment firm acquisitions of Barracuda Networks and Datto headed the list of transactions in the backup and recovery space.

Here's a review of the 2017 storage acquisitions:

Major storage systems vendors' 2017 focus

The storage industry's top vendor, Dell EMC, was noticeably absent from 2017 M&A activity. Dell's $60 billion-plus deal to buy EMC closed in 2016, and this year, the newly merged company elected to focus on its own research and development efforts and external investments through its Dell Technologies Capital arm.

Meanwhile, rival HPE aggressively sought to reverse its sagging storage fortunes with the infusion of Nimble's Adaptive Flash hybrid and Predictive All Flash arrays. HPE said the Nimble products would target the SMB and midmarket segments, with its enterprise-class 3PAR StoreServ arrays at the high end. Nimble's InfoSight predictive analytics was a critical part of the deal, and HPE disclosed plans to incorporate the application monitoring technology into its other storage systems.

The SimpliVity acquisition gave HPE data deduplication and compression capabilities that were lacking in its homegrown hyper-converged products, which combine storage, compute and virtualization in the same box.

Toshiba said it remains on track to close the sale of its memory business to the Bain Capital-led consortium by the end of March 2018.

At year's end, the jury is still out on the financial impact of HPE's storage acquisitions. HPE's $871 million in storage revenue for its fiscal 2017 fourth quarter was only 5% higher than the same quarter a year ago. But outgoing HPE CEO Meg Whitman said Nimble's revenue increased 80%, and 3PAR sales were "soft." HPE President Antonio Neri will take the reins as CEO in February and try to boost those numbers.

NetApp quietly snuck in a midyear purchase of Plexistor, a startup specializing in low-latency persistent memory. NetApp CEO George Kurian said the Plexistor acquisition would help the company to pursue new application types and emerging workloads. Plexistor had targeted big data analytics and in-memory database processing with its software-defined memory product.

Toshiba memory business sale

On the NAND flash front, the sale of Toshiba's memory business to a Bain Capital-led consortium appears on track after months of legal challenges and bidding speculation. The Tokyo-based vendor split off its profitable chip business in April and put it up for sale to cover enormous losses associated with its U.S.-based Westinghouse Electric nuclear power division and stave off delisting from the Tokyo Stock Exchange.

But Toshiba's NAND flash joint venture partner, Western Digital's SanDisk subsidiary, raised objections every step of the way, claiming no sale could take place without its consent. Western Digital sought injunctive relief through the California court system while its arbitration request pended before the Paris-based International Court of Arbitration, which is operated by the International Chamber of Commerce.

Toshiba and Western Digital finally reached an agreement in December that extended one of their flash joint ventures through 2027 and the other two through 2029. The deal calls for Toshiba and Western Digital to jointly invest in a new 3D NAND flash fabrication facility under construction in Yokkaichi, Japan, and, through future agreements, participate in a new flash wafer fab due to be built in Iwate, Japan.

As part of the settlement, Toshiba and Western Digital agreed to withdraw all pending litigation and arbitration actions. Toshiba said it remains on track to close the sale of its memory business to the Bain Capital-led consortium by the end of March 2018.

However, Western Digital's blessing wasn't the last hurdle for the Toshiba deal. The acquisition must pass antitrust review in China, and Toshiba investors are now wondering if the deal is even necessary.

The Bain-controlled consortium includes Hoya Corp., South Korea-based chipmaker SK Hynix, and a group of U.S. investors comprised of Apple, Kingston Technology, Seagate Technology and Dell Technologies Capital. The Innovation Network Corporation of Japan and Development Bank of Japan also expressed interest in investing, according to Toshiba.

More flash 2017 M&A

While immersed in the Toshiba negotiations, Western Digital announced in August that it would buy flash and hybrid HDD/SSD systems vendor Tegile Systems for an undisclosed sum. Western Digital had been an investor in Tegile through its purchase of SanDisk, and supplied the flash media for Tegile arrays.

Also in 2017, Soros Fund Management's Quantum Partners came to the rescue of financially troubled Violin Memory, bailing the company out of bankruptcy. The flash storage pioneer set its sights on selling all-flash arrays to enterprises that want to build private clouds and replicate data to public clouds.

Ebrahim Abbasi is Violin's new CEO and president, stepping up from his COO position to replace Kevin DeNuccio. Abbasi predicted Violin will become profitable in 2018.

Hyper-converged market

HPE's acquisition of SimpliVity started 2017 M&A activity in hyper-convergence, followed by two smaller deals. Cisco Systems bolstered its hyper-converged infrastructure strategy with the August acquisition of software partner Springpath for $320 million in cash. The San Jose, Calif., vendor's HyperFlex appliance launched in 2016 with Springpath's distributed file system running on its Unified Computing System servers. Cisco had been an investor in HCI startup Springpath since 2015.

In February, hyper-converged startup Stratoscale bought Cambridge, Mass., company Tesora for its open-source-based database-as-a-service technology for public, private or hybrid cloud computing platforms. At the same time, Stratoscale also made available an Amazon Web Services-compatible relational database service.

Other storage acquisitions

Semiconductor supplier Broadcom Limited finally completed its $5.9 billion acquisition of Brocade Communications Systems on Nov. 17, more than a year after announcing the blockbuster storage acquisition. Broadcom wanted only Brocade's Fibre Channel SAN switch business and sold off Brocade's other assets. Arris International struck an agreement for Brocade's Ruckus Wireless and ICX Switch business for $800 million in cash, and Extreme Networks bought Brocade's Ethernet switch, router and analytics business for $55 million.

In July, Red Hat acquired Permabit's inline compression, data deduplication and thin provisioning technology and assets. The Raleigh, N.C., open source software vendor said it would add the Permabit deduplication and compression technologies to its Red Hat Enterprise Linux, which would serve to enhance Red Hat's hybrid cloud and storage technologies as well. Red Hat also disclosed plans to open source the Permabit technology, consistent with the company's practices.

Shifting sands in data protection

At the end of November, investment firm Thoma Bravo bought Campbell, Calif., company Barracuda Networks for $1.6 billion, enabling the backup and email security and data protection vendor to go private. Barracuda CEO BJ Jenkins said the transaction would give the company an opportunity to accelerate growth.

Barracuda reported revenue of $94.3 million for quarter ending on Aug. 31, up from $87.9 in the same quarter in 2016. Most of the vendor's revenue comes from subscriptions. Barracuda also sells backup and recovery appliances.

In October, investment firm Vista Equity Partners acquired Norwalk, Conn., company Datto for an undisclosed sum and announced plans to merge the data protection vendor with IT management provider Autotask, another company in its portfolio.

Vista said the merger would bring together backup and disaster recovery, professional services automation, networking continuity, file sync and share, and remote monitoring and management for managed service providers that serve small businesses.

In other transactions early in the year, Datto bought cloud networking provider Open Mesh for an undisclosed sum and created a new Datto Networking product line for SMBs and Dell sold cloud-to-cloud backup vendor Spanning to Insight Venture Partners. Spanning came to Dell in the 2016 EMC merger.

In August, GI Partners-owned Peak 10 closed on a $1.675 billion deal for ViaWest, a subsidiary of Shaw Communications, to focus on hybrid IT, including colocation, interconnection, cloud, managed offerings and professional services. The newly merged company quickly upgraded its cloud disaster recovery product, and a company vice president said a data protection suite of services is on the roadmap.

Another merger took place in July, between Mountain View, Calif., company Axcient, a disaster-recovery-as-a-service specialist, and Denver-based EFolder, a cloud-based data protection provider for the IT channel. The combined company claims to have more than 50,000 customers with a reach of about 4,000 managed service providers.

Carbonite made a couple of acquisitions in 2017 designed to enhance its suite of cloud and hybrid data protection products for small and midsize businesses. The Boston-based vendor bought Datacastle and rebranded its RED product as Carbonite Endpoint Backup to boost its offerings for the SMB market. Carbonite spent $65.25 million on Double-Take Software in January to add high-availability technology designed to minimize downtime.

Arcserve was also in acquisitive mode in 2017. The Eden Prairie, Minn.; data protection and availability specialist acquired Zetta, a cloud backup and DR service provider, in July. Arcserve added FastArchiver's email archiving technology in April.

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