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Hedge fund returns Nexsan storage to private ownership

Nexsan storage technology is the only moneymaking asset for publicly traded Imation. The vendor is going private with help from a Louisiana hedge fund.

Nearly four years after being acquired by publicly traded Imation Corp., Nexsan Inc. is going private again.

Nexsan's storage business will spin out as a private company from Imation in February. New Orleans-based hedge fund Spear Point Capital Management LLC is financing the move with a $2.5 million stake and directorship on the Nexsan board.

Nexsan isn’t completely free of Imation. Bob Fernander, who was Imation CEO before the split, remains in that position, as well as Nexsan CEO after the spinout. Fernander said Imation will restructure and raise $100 million in capital in 2017. After it completes the restructuring, Imation will take a 50% stake in Nexsan. Spear Point and Nexsan employees will split the remaining equity.

The move will trigger the creation of a new Imation, which has been hollowed out in recent years by a sell-off of low-margin products.

Nexsan's flagship storage product is an all-flash version of Nexsan Unity unified block and file array. Other Nexsan storage products includes Assureon archival and object system, E-Series high-density SATA block storage, and Transporter enterprise sync-and-share appliances inherited from Imation's Connected Data acquisition.

Connected Data founder Geoff Barrall, who joined Imation following the 2015 acquisition, will serve as Nexsan CTO and join Fernander on the board.

Fernander said private ownership enables Nexsan to pursue strategies that would otherwise trigger a required public securities filing.

"Becoming a privately operated company gives us a lot more flexibility," he said. "We will be able to make investments and line up strategic partnerships that we might not necessarily want to share publicly."

Nexsan employs about 170 people. Fernander said no layoffs are planned.

A new Imation as well

Imation is a holding company that acquired Nexsan storage technology for $120 million in January 2013. Fernander took over as CEO in October 2015 and soon after initiated a board-approved restructuring of Imation to exit low-margin businesses.

Becoming a privately operated company gives us a lot more flexibility. We will be able to make investments and line up strategic partnerships that we might not necessarily want to share publicly.
Bob FernanderCEO, Imation

That left Nexsan as Imation's sole revenue-producing asset, and it has been losing money. Imation reported $32.8 million in revenue, with a loss of $103.8 million in the first nine months of 2016. Imation's cash balance and short-term investments totaled $49.6 million as of Sept. 30.

Proceeds from the asset sales will help to reconstitute Imation as a registered investment adviser. The new entity will be a shared ownership, with Spear Point providing cash and Imation incurring debt financing.

Ron Bienvenu, managing member and founder of Spear Point, said Imation will evolve over time as a publicly traded hedge fund.

"In the meantime, we can unleash the Nexsan storage products and fund it properly," Bienvenu said. "We bring very patient investors who are in it for the long term. Usually, when you get a deal like this, it's because the company has problems, but the factors that generally give you pause just aren't there with Nexsan.

"Nexsan has gone from consuming a fair amount of cash to a company that's been right-sized for cash-flow profitability. It's got a great management team and the potential to do something special with the Unity and upgraded E-Series products."

As Bienvenu pointed out, Imation has trimmed its losses. It lost $7.1 million last quarter, compared with a $152.3 million loss in the same quarter of 2015. But it brought in only $11.5 million in revenue, down from $14.5 million the previous year.

Nexsan is involved in a lawsuit against Dell EMC over use of the Unity trademark. Nexsan introduced Nexsan Unity NAS and SAN file storage with cloud orchestration April 26, less than one week before EMC launched its midrange flash and hybrid Unity array.

Dell EMC and Nexsan have completed the discovery process and are preparing to make their case at a Dec. 5 court hearing. Both vendors said they will abide by the judge's summary judgment. A decision is expected in 2017.

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