The first storage acquisition of 2013 came early when Imation Corp. put up $120 million this week for Nexsan storage,...
a SAN and network-attached storage array vendor.
The deal -- announced Wednesday on the first business day of the year -- extends Imation's storage footprint after several years of its making smaller acquisitions. Imation is not known primarily as a storage vendor, but acquired InfiniVault removable hard drive assets from ProStor, deduplication from Nine Technology and encryption from Iron Key in 2011.
Oakdale, Minn.-based Imation is trying to transition from a tape media company to a full storage vendor after a string of money-losing quarters since 2009. In October, Imation said it would split into two business units: Tiered Storage and Security Solutions (TSS) and Consumer Storage and Accessories, or CSA. Nexsan joins the TSS group, but will maintain its Thousand Oaks, Calif., headquarters. Imation said Nexsan's 200 employees will join the company, and Nexsan CEO Philip Black and other executives will continue to run the group.
Black and Imation TSS president Ian Williams said Nexsan will continue with its current product line and strategy. Nexsan's data storage portfolio has been extended over the past two years by adding NST500 hybrid flash multiprotocol storage and E Series high-density storage systems to replace its traditional "Beast" family of high-capacity SATA and SAS storage. It also sells Assureon object-based software for archiving and cloud storage.
Nexsan sells mostly to small and medium-sized businesses and small enterprises, and its main competitors are EMC, NetApp and Dell. Black said its value proposition is that "Nobody else has purpose-built bulk storage, and they try to force bigger storage systems on you."
Black said Nexsan has about 30,000 installations, and about half are primary storage, with the rest serving as secondary storage for data protection and archiving. He said McKesson Corp. and GE Healthcare use Assureon for archiving systems and to build public clouds for health care customers.
Williams said Nexsan was the next step for Imation's strategy because it brings a full storage platform that Imation can sell immediately. Nexsan's storage products are not competitive with any of Imation's products, he said.
Black said he was not shopping Nexsan until Imation approached him last year. Nexsan was focused on going public, and filed an S-1 form for an initial public offering (IPO) each year from 2008 to 2011. But the IPO market dried up soon after Nexsan filed its first S-1.
Nexsan said it had $82 million in revenue in 2011, up from $69 million the previous year. It did not make results from 2012 available. Nexsan started selling storage in 1999.
The price for Nexsan was low compared to other storage acquisitions in recent years. EMC spent $2.1 billion on Data Domain in 2009, $2.25 billion on Isilon in 2010, and $430 million for stealth flash startup XtremIO last year. Hewlett-Packard paid $2.35 billion for 3PAR in 2010, and Dell spent $1.4 billion on EqualLogic in 2007 and $820 million on Compellent in 2010.
But Black said the deal will benefit Nexsan because a company the size of Imation can accelerate its investment in research and development and raise brand awareness. "There couldn't be a more benign acquirer than Imation," he said. "They need our people and culture, and there are strong synergies. They do not plan to make any radical changes."
He said Imation will also help market Nexsan storage. "People who don't have our product view Nexsan as a small company and say, 'I'll stick with EMC,'" he said. "Now we have a billion-dollar name behind us."
The Imation name might not be worth what it used to be, though. Imation has seen sales fall drastically over the past few years. Its $248.2 million revenue for the third quarter of 2012 was a 20% decrease from the previous year. Its $6.5 million in operating losses would have been greater if not for $3.6 million in restructuring charges.
Still, StorageIO Group analyst Greg Schulz said the acquisition can help both companies advance. "Imation has been moving into storage by making smaller acquisitions," he said. "Their acquisitions have been all over the board, they're trying to pick up security, trying to pick up backup. Nexsan gives them a core product to jump-start their storage lineup."
As for Nexsan, Schulz said, "it needed a bigger brand, a bigger company associated with it, which is what Imation brings. Nexsan might be a tier two or tier three provider, but it's moving up from the low-cost commodity niche type product that it used to be."