CommVault: M & A Rumor Mill Churning

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Includes: BRCD, CVLT, DELL, NTAP, SYMC
by: 451 Research: Inorganic Growth

By Brenon Daly

To paraphrase Mark Twain, a rumor can travel halfway around the world while the truth is still putting on its shoes. At least that’s the case with M&A gossip right now. Rumors are flying, in many cases given wing by some of the unusual multibillion-dollar pairings that have popped up in recent weeks. Who would have thought, for instance, that Cisco (NASDAQ:CSCO) would have gone shopping in Norway (of all places) to ink its largest deal in a year and a half? And who would have picked Dell (DELL) as the buyer for Perot Systems (NYSE:PER)? (Except for that guy who traded Perot options on inside information, that is.)

All uncertainty, of course, serves as fertile ground for speculation and rumors. Earlier this week, The Wall Street Journal reported that Brocade Communications (NASDAQ:BRCD) may have selected a banker to help it with a sale. While we’ve noted in the past that Brocade is likely to get snapped up, we have our doubts that anything is imminent. (And we doubt even more that Brocade would ever end up at Oracle (NYSE:ORCL), as the WSJ speculated.) But since we love rumors as much as the next person, we figured we’d pass along one that we’ve heard making the rounds this week: CommVault may be in play, with NetApp (NASDAQ:NTAP) as the possible buyer.

We’ve mulled over a CommVault-NetApp pairing in the past, most recently after the storage giant lost the bidding war for data de-duplication specialist Data Domain this summer. But we’ve never felt that the two companies fit tightly together all that well. (Still, one recent competitive development may spur NetApp to make a move. Symantec (NASDAQ:SYMC), which had been a longtime partner of NetApp, rolled out its own NAS software offering. To counter Symantec’s move on its turf, NetApp could use the archiving and de-dupe offering that would come with CommVault. Whether that’s enough to drive a deal, well, we’re not so sure.)

There are still a lot of differences between the two companies. For starters, CommVault pretty much sells straight software, while NetApp wraps its IP in hardware. (Further, its boxes are at least partly an alternative to CommVault’s offering.) Also, CommVault, while now targeting enterprise sales, primarily pursues the low end of the market while NetApp sells at the high end. Add to that a newly appointed chief executive who might want to actually move into the corner office before making an acquisition that would (for good or ill) reshape the company irrecoverably, and we just don’t see NetApp reaching for CommVault.

Instead, we have our own leading candidate for CommVault: Dell. On the heels of its purchase of Perot, Dell went out of its way to say that it was still very much planning to do deals, and storage has been a focus of its shopping in the past. CommVault and Dell already have an OEM arrangement and share thousands of customers. The fact that CommVault recently rolled out a relatively low-cost de-dupe offering would make it even more attractive to Dell, we suspect. CommVault, which is solidly profitable, has a market capitalization of $870m but holds about $120m in cash, lowering its enterprise value to just $750m.