Black Box Buys Virtualization Specialist Cloudium

Solution provider giant Black Box Network Services has acquired a small, privately held Irish firm that specializes in the development of desktop virtualization hardware and software.

Black Box -- No. 34 on CRN’s 2015 Solution Provider 500 -- said the deal will help strengthen its position in the high-performance, kernel-based virtual machine (KVM) and KVM-over-IP market. KVM is a virtualization infrastructure for the Linux kernel. Cloudium’s expertise in software and development will complement the 11 KVM hardware products in the Black Box portfolio, according to a statement from Black Box.

Cloudium’s development team will become Black Box employees, the statement said.

[Related: Black Box Hires New CEO After Rocky Sales Reorganization]

Cloudium, based in Limerick, was founded in 2009 and has 12 employees, according to business information website Mattermark.

"Black Box's product growth strategy is to expand our core assets with software and services that offer a complete solution to current and emerging target markets," Josh Whitney, vice president of technology product solutions and international services, said in the statement.

Whitney said Black Box plans to leverage Cloudium's assets and development expertise to deliver "mission critical KVM systems." Black Box also plans to rely on Cloudium's AV/IT Enterprise Management platform to round out Black Box’s portfolio of control room and data visualization solutions, he added.

No additional details about the transaction were released.

Black Box, based in Lawrence, Pa., is in the middle of a corner-office transition. On Feb. 29, E.C. Sykes, a veteran executive whose resume includes top-level roles at supply-chain technology company Flextronics International, took over as CEO from Michael McAndrew, who has been with company for 13 years, with most of the past three as CEO. He's expected to stay with Black Box until June 3 to help Sykes transition into the job.

In December, McAndrew announced he would leave near the end of a rocky year that saw a restructuring of Black Box’s sales force and a 62 percent plunge in its stock price, to $9.53 per share.

The stock has since rebounded, and market reaction to Monday's acquisition -- announced about 30 minutes before the market opened Monday -- was generally positive. The stock opened at $13.32, and rose about 2 percent within the first 90 minutes of trading before retreating to just above its opening price at midday.

Black Box concluded its 2015 fiscal year, which ended in March 2015, with a slight growth in revenue -- 2 percent -- to $992 million, following back-to-back years of declines. After losing $116 million in fiscal 2014, it eked out a $15 million net profit in fiscal 2015.

But through the first three quarters of the current fiscal year, Black Box suffered net losses of $123 million, compared with net income of $12.4 million at the same juncture in 2015, according to company statements.

During two of the company's earnings calls in 2015, McAndrew called out his sales force for underperforming, describing their output as "unacceptable" as a major restructuring over the past year had failed to increase revenue or bookings. Also in December, McAndrew told investors to expect continued slow sales from Black Box's federal and commercial customers through at least last month.

But at the time, McAndrew also said Black Box's "transformational efforts (were) well underway."

Anthony Lembo, managing director at martinwolf of Walnut Creek, Calif., which advises technology businesses on mergers and acquisitions, said the deal makes sense for Black Box, which relies heavily on hardware products for its revenue. Getting into desktop virtualization "clearly gives you the capabilities" to get more deeply into the cloud, which many solution providers are looking to do, he said, alluding to Accenture's purchase of Cloud Sherpas last year. Having the services that Cloudium provides will help Black Box, Lembo noted.

The acquisition won't change Black Box's revenue issues "immediately," he added, as the company "slowly starts adding some services."