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."

NEXT: What It Means For The Channel

Enterasys itself sees Extreme's acquisition as a positive move.

"I look at it as a triple-double here," said Enterasys Chief Marketing Officer Vala Afshar. "You're talking doubling our revenue -- there is a $600 million to $700 million potential synergy between the two companies -- and you're doubling the number of customers. It's fascinating that two companies can compete in the same market for so long and yet have minimal overlap [between customer base]. So you're doubling the revenue, you're doubling the customers and, what's really exciting, is that you're doubling the talent pool."

Both Extreme and Enterasys, which have roughly 700 and 1,300 partners worldwide, respectively, said the acquisition spells good news for the channel.

Afshar said the companies are still working out the details around channel executive teams and what the combined Enterasys-Extreme partner program will look like. He did say, however, an "integration team" will be put into place to navigate the integration of both Enterasys' and Extreme's product portfolios and channels.

"[Extreme] is committed to their channel; we're committed to our channel and partners who invest in us, and, ultimately, once the close is official, certainly the combined company will support both companies' combined portfolio," Afshar said. "It just doesn't make sense for either company to naturally disrupt the current portfolio. We have committed and loyal customers and partners."

Extreme's Caragol agreed, and said she expects minimal channel conflict between Enterasys and Extreme partners, given how little overlap there is between the companies' customers.

"For Extreme partners, it's business as usual. Until the integration is finalized, everyone needs to continue to drive their own solutions," Caragol said. "Over time, as the companies come together, we will look at reference architectures for the right customer opportunities and will publish those in time, along with an entire enablement and training plan for partners."

Paul Maier, senior vice president of product technology and president of the S1 IT data division at ConvergeOne, an Eagan, Minn.-based solution provider, said the Extreme's acquisition of Enterasys will help him bulk up his product portfolio, particularly around wireless and deep packet inspection solutions.

"From a partner standpoint, this provides additional scale as well as capability and technology investment opportunity for Extreme, which can ultimately only benefit the customer," Maier said. "ConvergeOne is really focused on providing best-of-breed solutions for our customers with a full-service. ... I think the addition of the Enterasys wireless capability and deep packet inspection together with the Extreme switching excellence are going to give us a much broader solution set for our customers."

Maier said he's not concerned about competition from Enterasys partners, as the two channels merge.

"I see it being much more complementary than competitive," Maier said. "I think it has a lot of upside for the customer and for us as a partner."

Chip Thompson, general manager at LevelOne Technology, a Waco, Texas-based solution provider and Enterasys partner, also views the deal as a win.

"In general, for LevelOne, I think it's good thing," Thompson said. "[Extreme and Enterasys] both have their market segments where they are very strong, and from what I've read, combining the Extreme data center pieces with Enterasys' single-pane-of-glass network management, wireless and edge [products], I think it will be a good fit."