Brocade acquisition rumours return: Who's buying?

The For Sale sign appears to have gone up again at Brocade. But Brocade acquisition rumours have kicked around for years now. Is this time any different?

Brocade acquisition rumours are afloat again, with a new report from Reuters report that Frank Quattrone’s Qatalyst Partners has drawn up a shortlist of potential buyers with a few new names in the mix.

Citing "sources familiar with the matter," the Reuters report says Brocade has received first-round bids from a half dozen potential private equity buyers. The report sent the company's stock up over 10% January 9, before it settled back and closed the day up 35 cents.

Who is interested in a Brocade acquistion?

The six potential buyers, according to Reuters, are Silver Lake Partners, TPG Capital LP, KKR & Co LP, Blackstone Group LP, Bain Capital and Warburg Pincus LLC.

Private equity investment could really help to reinvent Brocade and its product offerings. The firms specialise in using their sector experience and industry relationships to create unique, proprietary opportunities.

Of all the potential buyers, Silver Lake has the most esteem in the technology sector. According to its website, it has worked with Avaya, Gartner, Intelsat, Interactive Data Corporation, IPC Systems, the NASDAQ OMX Group, NetScout, Seagate Technology, Serena Software, Skype, Spreadtrum Communications, SunGard Data Systems, Thomson, UGS, and Vantage Data Centers.

With each business handled separately, competition could become inevitable and a spokesperson would not deny that the likes of Avaya may end up walking away from private equity backing should Brocade be seen to be stealing the limelight.

Which rivals may be privately interested in the Brocade networks?

Meanwhile Bloomberg is reporting that Oracle may acquire Brocade to bolster its enterprise software and server businesses by adding networking products.

Oracle has not completed its acquisition of Sun, currently stopped par EU, and is obliged to wait to enter into negotiation to get another big company. However, having networking would give Oracle another lever to press itself as a more complete alternative to HP after Foundry Networks was bought by Brocade three years ago. Brocade wanted to transform itself from a Fibre Channel networking vendor to a data center networking vendor and Foundry had the engineering talent and a loyal customer list to draw upon.

According to one network infrastructure principal analyst, Oracle may be interested because “Larry Ellison likes hardware to bundle it with software, the proofs being his own investment in Pillar and the Sun's operation. If there is any chance for Brocade to be acquired in the future, it could be by Oracle to try to stop EMC/Cisco and HP/3com in the next wave of converged network.”

He adds that Oracle’s recent poaching of HP channel architect Tom LaRocca to head strategic alliance, indicates potential for shared strategies and ambitions between Oracle and Brocade.

How about a Dell-Brocade connection?

As the UK woke up to the rumour mill kicking off in the UK, networkers were gathering en-masse at the first Dell Storage Forum event in Europe, where Dell announced advancements in its Fluid Data architecture, in partnership with Brocade - who were also sponsoring the forum.

One key announcement saw Dell confirm that it is focused on speeding storage deployment, increasing performance and simplifying administration through improved interoperability with Dell Force10 and Dell PowerConnect Ethernet solutions and Brocade 16Gb Fibre Channel switches.

Darren Thomas, vice president and general manager, Dell Enterprise Storage, said on stage: “By combining the Dell Fluid Data architecture with Brocade's 16Gb Fibre Channel infrastructure, Dell Compellent customers can realise flexibility, reliability and simplicity for their SAN environments to support next-generation applications and services within highly-virtualised, cloud-optimised environments.”

He praised the Brocade DCX 8510 and the Brocade 6510 switch as “powerful SAN backbone that simplifies scale-out network design to reduce network complexity, management, and costs, while helping maximise overall port density and space utilisation through massive consolidation of legacy SANs.”

One Compellent customer in attendance, who asked not to be named, said they had been lobbying Dell to add Brocade infrastructure to its offering, and success could pave the way for Dell to offer Brocade a more permanent merger opportunity.

“It’s great to see Dell take heed of our calls to work closely with Brocade and enable customers to quickly adapt to the changing demands of their organisations and increase automation for management of their primary, backup and archive data. What will be interesting is how this works once the new Brocade products are unveiled later this month…clearly Dell are interested in the technology, so a more formal partnership/merger would really open doors for Force10,” the customer predicts.

Simon Robinson, storage research director at 451 Research, added:  “With these recent product introductions and enhancements, Dell continues to build on its vision of Fluid Data architecture. This strategy fits well with the broader Dell portfolio, and also opens a significant opportunity to expand its footprint within its own existing customer base and in the wider storage market. Dell is well placed to move more aggressively both upstream and downstream.”

Is a rival really suited to ownership of Brocade networks?

Such a merger may be the preferred option for Brocade, as analysts cast doubt that customers will be keen to see their networking provider move into the hands of another provider altogether. Reportedly,  Dell had considered buying Brocade before passing over it in favor of Force10 Networks.

Brian Marshall, an analyst at ISI Group, said: “Brocade’s client partnerships could make a takeover less attractive. One reason is that 60% of Brocade’s data- storage products, which account for more than half of its sales, are sold through agreements with Oracle, IBM and Hewlett- Packard, he said. If Oracle or IBM bought Brocade, the deals with the other two would probably end. It’s all a bit of a minefield. But private equity has been shown to work in boosting the offerings and value of a customer. So that wouldn’t be the worst case.”

Will the sale of Brocade networks make any difference?

Last summer, news director Shamus McGillicuddy questioned just how much this would impact on network engineers, skeptical of business interests taking precedence over actual networking needs.

“Most engineers play it safe. They stick with Cisco, which owns the market and isn’t going anywhere. HP Networking appears to be the safest alternative for longevity in the networking industry that we’ve seen in a long time. But things can change. CEOs turn over. Shareholders get restless,” he blogged.

Instead, according to Lucinda Borovick of analyst firm IDC, predicts that Brocade’s real worth will be seen in its capabilities in FC switching, because “this will remain the dominant storage networking architecture for the next five years. In fact, FC switches are benefiting greatly from the rise of server virtualization, which is the single biggest driver for new storage networking ports.”

Infonetics also expects the 2011 FC market to be up about 6% over 2010, and growth to reach double-digit percentages in 2012.

Brocade’s FC deployments are numerous, while it admits it has only recently hit the 100 GbE deployments milestone with large Internet Exchange Points (IXPs), content delivery network (CDN) providers, and research organisations, such as the European particle physics laboratory, CERN the Amsterdam Internet Exchange (AMS-IX), Limelight Networks and Howard Hughes Medical Institute (HHMI).

All eyes will be on the developments as the rumour mill continues to trend. Yet the longevity of this saga could make this a never-ending tale for many years to come.

As Forrester analyst Vanessa Alvarez tweeted: I'll believe the #Brocade acquisition rumors when I see it, I've been hearing the same thing for 2 years now #snooze

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