Extreme Networks To Buy Enterasys For $180M, Double Its Size


Extreme Networks Thursday announced plans to acquire fellow networking vendor Enterasys for $180 million, a move that will not only double Extreme's annual revenue and significantly strengthen its R&D muscle but also help it nip at the heels, more aggressively than ever, of networking titans like Hewlett-Packard and Cisco.

"The deal effectively makes the company double the size," said Theresa Caragol, vice president of global channels at Extreme. "Of course, we made the acquisition, but we are very much treating this like a merger of equals, and taking the best of both worlds."

The deal, according to industry analyst firm ZK Research, is set to make Extreme the fourth largest player in the worldwide Ethernet switching market, in terms of revenue, trailing only Cisco, HP and Huawei.

 

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Caragol said the combined company will operate under the Extreme name and will continue to support products from both Extreme and Enterasys "for the foreseeable future." The deal is expected to close in the fourth quarter, with both companies operating separately until then.

Chuck Berger, Extreme's president and CEO, will remain CEO of the combined entity. Enterasys CEO and President Chris Crowell will continue to play a "prominent role" in the organization, according to Enterasys, but specifics of the role are still up in the air.

Zeus Kerravala, principal analyst at ZK Research, sees the deal as a win for both Extreme and Enterasys. For Extreme, the acquisition will round out its primarily high-end, data center-focused portfolio with Enterasys' campus networking, network security and wireless offerings. The technologies from Enterasys and Extreme, he said, are vastly complementary, meaning there will be little overlap between each company's existing customer base.

"I don't know of any company that runs both Extreme and Enterasys," Kerravala said. "It's very likely that you would see both in the same account."

What makes the deal even sweeter for Extreme, Kerravala said, is the price tag. Buying a company like Enterasys for $180 million -- a figure far below the roughly $330 million Enterasys makes in annual revenue -- is an "absolute steal," he said.

"Considering the quality of [Enterasys'] wireless products, ... I was expecting somebody like Dell to have made a move like this a while ago," Kerravala said.

But, he continued, it's a win for Enterasys, too. The Salem, N.H.-based company, which has roughly 900 employees, went private in a $386 million deal led by the Gores Group in 2005. In 2008, Enterasys was then merged with Siemens Enterprise Communications as part of a joint venture between Siemens and the Gores Group. The problem with that merger, according to Kerravala, was that it placed too strong an emphasis on Enterasys becoming a unified communications vendor, rather than a networking one.

"They didn't really get the leverage that they wanted from that combined entity," Kerravala said. "So I think Enterasys now is in the hands of an owner who puts networking first."

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