F5 Networks Partners: Buyout Could Lead To 'Significant Risk' For Channel

Some of its partners said the potential buyout of application delivery networking vendor F5 Networks poses a risk to the channel that could end up hurting revenue.

"A buyout, in my mind, leads to significant risk in keeping the focus on the channel," said one top executive from an F5 Platinum partner solution provider who declined to be identified. "Depending on who will pick them up, ... I'm concerned that a sale would hurt our ability to continue accelerated growth together."

The solution provider exec said that if F5 is purchased by a larger vendor whose channel incentives and product R&D investment are geared toward different market segments -- or that is simply not as indirect-sales-focused as F5 -- sales could take a hit.

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Seattle-based F5 networks hired Goldman Sachs to evaluate takeover approaches it has received, according to a Reuters report.

Both F5 Networks and Goldman Sachs declined to comment on the matter.

In a Citigroup report by analyst Jim Suva, potential buyers include Hewlett Packard Enterprise, Dell, EMC and Cisco.

Although rumors of F5 as an acquisition target have come up before, partners told CRN that this time is different, because of market disruption and increased competition.

"Maybe the writing is on the wall because their sales forecast isn't there," said Bill Smeltzer, chief technology officer of Seabrook, N.H.-based Focus Technology Solutions, an F5 partner ranked No. 396 on the CRN 2016 Solution Provider 500. "They've also got ankle biters like A10 [Networks] and Coyote [Point Systems] and others jumping into the mix.

"With software-defined networking -- with what we're seeing with the likes of VMware NSX, Arista [Networks] and [Cisco] ACI -- maybe that application service delivery is really going to become an extension of the SDN market."

Barry Shevlin, CEO of Vology, a Tampa, Fla.-based solution provider and F5 partner, said that although the vendor's revenue is growing slightly, it might not be enough.

"Things are flattening out," said Shevlin. "They've gotten some measuring of market penetration that they're going to retain, but certainly not grow it double digits. It seems like it makes sense to be part of something bigger."

In its second quarter, ended in March, F5 generated $483.7 million in revenue, the company reported, up 2 percent year over year. The company is predicting revenue for its current quarter of $490 million to $500 million, which would be an increase of 1 percent to 3 percent compared with the year-earlier quarter.

Partners told CRN that potential buyers would likely be HPE or Dell-EMC, rather than Cisco -- which closed down its load-balancer product line ACE in 2012.

"Cisco bowed out of this industry," said Smeltzer. "For them to buy an F5, I don't know if they want to be in that industry. They might see SDN kind of taking over these appliances."

Solution providers said the most likely candidate would be Dell-EMC in order to provide a more "robust" end-to-end portfolio after their merger.

F5 stocks jumped more than 12 percent this week in the wake of the acquisition speculation, hitting $123.94 per share -- a height not seen since August.

Last year, longtime CEO John McAdams said he was leaving the company after 15 years, to be replaced by Manny Rivelo, but Rivelo abruptly resigned in December after only six months on the job. McAdams was immediately voted back into his CEO position by the board. In McAdams' tenure, the company's annual revenue grew from $108 million to more than $1.7 billion.

Rivelo is now CEO of application-centric infrastructure specialist AppViewX.