Dell Technologies is selling its cloud-based backup storage Mozy business to Carbonite for $146 million as the company continues to explore significant structural changes, including the possibility of going public or merging with its subsidiary VMware.
"Dell's looking at its balance sheet, how each business unit is doing, looking at the structure to see what it can shed to get ready for an uncertain budget year ahead in part because of the new [federal] tax code," said one top executive from a solution provider and Dell EMC partner, who did not wish to be named. "[$146 million] is not a ton of money for Dell EMC, but it makes sense to sell it off right now."
Mozy, a Seattle-based backup storage and data protection specialist founded in 2005, came under the Dell Technologies umbrella in 2016 through its $67 billion acquisition of EMC.
Channel partners said Mozy's consumer and SMB business focus didn't mesh well inside Dell Technologies for various reasons, including product overlap and its inability to get traction outside of small businesses. "We never sold Mozy. There wasn't really any need to," said the executive. "It wasn't the right customers for the channel."
Michael Tanenhaus, CEO of Mavenspire, an Annapolis, Md.-based solution provider and Dell EMC channel partner, said Mozy was "a bit of an outlier for the Dell EMC audience."
"In Dell's world, you get all sort of overlapping technology when you start dealing with all of the different backup products that have some way to replicate and backup to the cloud," he said. Tanenhaus said it's "probable" that the passage of the federal Tax Cuts and Jobs Act bill by Congress in December played a role in Dell's decision to sell Mozy.
"As part of their top-to-bottom review of the whole business at the end of last year, as part of that topic, they obviously looked at the tax impact on their financial structure and are looking at what to do about that, along with the places they can't get synergy or figure out how to make something profitable," said Tanenhaus.
The Tax Cuts and Jobs Act – although lowing the corporate tax rate from 35 percent to 21 percent – limits the tax deductibility of interest payments to 30 percent of a company's earnings before interest, taxes, depreciation and amortization (EBITDA). In December, Dell Technologies CEO Michael Dell wrote an editorial for The Hill titled, 'Don't leave business in the lurch in tax reform deal'.
Dell said that the bill "severely" limits the current ability of U.S. companies to deduct interest payments. "These new rules would unnecessarily impede growth for American employers that use debt as a capital infusion tool to drive growth and innovation," said Dell. "Changing rules on deductibility without regard for depreciation, pre-existing debt or transition periods will punish businesses that made investments in good faith, forcing them to accept a steep financial burden and unforeseen risks."
Dell did not comment by press time on whether the sale of Mozy was related in any way to the new federal tax bill.
Earlier this month, Michael Dell confirmed that his Round Rock, Tex.-based company is evaluating the two "potential business opportunities" of going public or merging with VMware with the desire to grow Dell "even faster and thrive in the very dynamic IT marketplace."
Carbonite's $146 million purchase of Mozy is expected to close within the next few weeks. Carbonite President and CEO Mohamad Ali said the acquisition "provides Mozy customers scalable options for the future and gives Carbonite a broader base to which we offer our solutions."