Cohesity CEO On Plan To Buy Veritas Unit: ‘We Now Have The Scale And Speed’ To Meet Enterprise Data Needs
‘The focus of Cohesity has been enterprise, and as we put the companies together we want to keep the focus on enterprise. We’ll get to midmarket later. If you take on more than you can digest, it’s a distraction. So from our enterprise focus, [Vertitas] NetBackup and Aptare and Alta are enterprise products. So that was the focus in the combination,’ Cohesity President and CEO Sanjay Poonen tells CRN.
Building A Data Protection, Data Security Powerhouse
Data security technology developer Cohesity’s planned acquisition of the enterprise business of data protection powerhouse Veritas Software is not the biggest storage acquisition ever. That prize goes to Dell and its $63 billion acquisition of EMC in 2016. That said, Cohesity’s planned acquisition of the Veritas enterprise business would rank as one of the top data storage acquisitions.
Sanjay Poonen, president and CEO of San Jose, Calif-based Cohesity, told CRN that the acquisition of Santa Clara, Calif.-based Veritas’s unit will create a $7-billion company with something not seen for a long time in the storage industry: a massively profitable and fast-growing data storage and data security powerhouse.
“Together, we have 96 percent of the Fortune 100,” Poonen said. “That customer base will allow us to create, I think, an iconic company. The type of companies we idolize are Snowflake or Palo Alto Networks. I think this is a Snowflake-meets-Palo Alto Networks-type of opportunity for all of that data, mostly secondary data, that’s sitting in enterprises. And now we have the scale and speed to address those customers.”
Cohesity’s plan involves buying Veritas’ enterprise business from its current owner, private equity firm Carlyle Group. The non-enterprise part of Veritas that Cohesity will not purchase will become a separate company that will be known for now as “DataCo.” Veritas CEO Greg Hughes will serve as a Cohesity board member and strategic adviser to Sanjay Poonen after the acquisition is closed.
Cohesity, which seemed to be on a path toward an IPO this year, is bullish on the acquisition even if it means putting that IPO off until next year, Poonen said.
“Timingwise, we were going to do this deal regardless of whether the IPO market was good or not,” he said. “I think it’s fortuitous that the IPO market was somewhat tepid. For us, an IPO is just a milestone in creating a great company. We’re trying to create collectively what one day will be a $50 billion market cap company. That’s never been done in this space. This is one of the most iconic deals that’s ever been done in our space—data protection and data security.”
It is indeed a big move in the storage industry, said John Woodall, vice president of solutions architecture West at General Datatech, a Dallas-based solution provider that works with both companies.
“This industry has long-term companies like Veritas and Commvault, and newer, smaller companies like Cohesity and Rubrik,” Woodall told CRN. “I will be watching to see how this plays out.”
Poonen is a very smart executive and probably has good insight into the benefits of combining the two companies, Woodall said.
“I just hope they can learn from the Broadcom acquisition of VMware the importance of communication and make sure to spell out clearly what the deal means for customers,” he said.
Here are seven key things Poonen told CRN about the acquisition.
Complementary, Not Competitive, Technology
Both companies bring incredible innovation that’s actually quite complementary in many areas. For example, Veritas has a backup product that could run on top of storage. A lot of [Dell] Data Domain customers run Veritas on Data Domain. On Wednesday, I called Dell executives and said we’re absolutely going to support that, that we’re absolutely committed to that use case of NetBackup running on Data Domain. We don’t do that today. A lot of customers will want that. It’s a more disaggregated sale.
Cohesity’s product has been focused on a scaled architecture, hyperconverged for on-prem and cloud. Veritas has actually made more progress than us in areas of cloud-native and data protection SaaS solutions for things like Google Workspace and Salesforce. We both do M365. Veritas has built their control plane on Azure. We built ours on AWS. I called the Microsoft execs and said we’re going to absolutely support Veritas’ investment in Microsoft. We do security and AI. Together, we will have an engineering team that’s 2X that of many of our competitors.
So it’s really about the best of both companies coming together to innovate for the future. And we will figure out places of overlap in the next six months in a confidential fashion by talking to customers about some of the draft ideas we have, getting their feedback, and then doing it. Obviously, we also have to respect the regulatory process. Because we are overlapping competitors, we can only do that with some caution. But we will figure it out. And I've been through many acquisitions before and have done them from SAP to VMware. I believe customers are going to win from this best-of-breed capability, whether the piece parts came from Cohesity or Veritas. In the long term, it’s going to be the best combination as we go forward.
Goal Is To Maximize Shareholder Value
I think we announced the transaction size of $7 billion. And our goal at both companies is to maximize shareholder value, when eventually there’s some form of liquidity, such as an IPO. So these interim valuation points are not necessarily the end goal, or even a milestone. They’re a stage in creating shareholder value over multiple years. So I view this as an opportunity for both of us to take that $7 billion, which is a higher number than many of our competitors are valued at today and get that to be 2X that number when we potentially think about going public, whenever those markets open up. I don’t think this is a great year for IPOs. But once the transaction closes, we’ll come back together and we’ll integrate the companies. That’s really where we want to be. And all those interim aspects of valuation become just a small data point in the long-term valuation. So everything about what we do, and I think Greg would say the same thing if he was on the call, is about long-term value creation. And I believe, even including the new shareholders who are joining Carlyle, and I believe they’ll be minority shareholders in the company, they’re also looking at this as ways by which they can create shareholder value. And in that long canvas, we believe our investors are going to do very, very well on their investment in this combined company.
Cohesity Taking Veritas NetBackup, But Not Backup Exec
[NetBackup is] the key component. We’re buying the data protection business including NetBackup software, NetBackup appliances and the associated SaaS data protection technology. We’re acquiring four key products that we will combine with Cohesity: Veritas NetBackup, NetBackup appliances, Alta cloud data management, and Aptare IT Analytics. And we’re combining that with Cohesity’s data platform. And that combination will be the portfolio we bring to our customers. …
From my perspective, at the core, we’re an enterprise company. As you know, we’re focused on the enterprise. We already had about 44 percent of the Fortune 100 as customers. The focus of Cohesity has been enterprise, and as we put the companies together, we want to keep the focus enterprise. We’ll get to midmarket later. If you take on more than you can digest, it’s a distraction. So from our enterprise focus, NetBackup and Aptare and Alta are enterprise products. So that was the focus in the combination.
Probably No Cohesity IPO This Year
Our bankers tell us this is going be a tepid year for IPOs. I mean, there’s a couple of months, maybe in the spring, maybe one month in the fall before the election, which might work. Election years are very uncertain for IPOs. 2023 was a bad year, and 2022 was a dry year. So our view was if it’s a tepid market for IPOs, why not bulk up together with Veritas, get this transaction closed, get integrated, and then I think the market in 2025 for IPOs will be better. I can’t predict who’s going to go public or not. But I can tell you our bankers tell us it’s going to be a tepid year. It’s not going to be great. …
Timingwise, we were going to do this deal regardless of whether the IPO market was good or not. I think it’s fortuitous that the IPO market was somewhat tepid. For us, an IPO is just a milestone in creating a great company. We’re trying to create collectively what one day will be a $50 billion market cap company. That’s never been done in this space. This is one of the most iconic deals that’s ever been done in our space—data protection and data security. And to do that, I think this is the first time you’ll see the sort of combination that has revenue momentum, a size of $1.6 billion, and good growth. We’ve been the fastest-growing company in our category, and Veritas has been one of the most profitable. So you get the fastest-growing with the most profitable. You get a profitable growth company at $1.6 billion of revenue, $1.3 billion of ARR [annual recurring revenue], 27 percent EBITDA, all the numbers we talked about. And check this out: hundreds of exabytes under management, or 100 times what many of the other alternatives in the market manage. Together, we have 96 percent of the Fortune 100. That customer base will allow us to create, I think, an iconic company. The type of companies we idolize are Snowflake or Palo Alto Networks. I think this is a Snowflake- meets-Palo Alto Networks-type of opportunity for all of that data, mostly secondary data, that’s sitting in enterprises. And now we have the scale and speed to address those customers.
The GenAI Play On All That Data
Cybersecurity and AI are the top two topics in the boardroom today. I’m on a couple of boards, including one big global 500 company’s board. Cybersecurity and generative AI is the tech everyone is asking, ‘What should we do?’ This company is right squarely placed in the convergence of multi-cloud data management and generative AI and cybersecurity. And to do this at the scale and speed we’re talking about jointly with Veritas is an incredible honor.
Veritas Is Very Profitable
I don’t know what it was like before Carlyle came in, but Greg and the team have done a remarkable job with making Veritas an innovative and profitable company. They are the most profitable company among the independents, meaning some of the companies inside bigger companies like IBM or Dell might be profitable. But of the companies that are independent in the IDC ranking—Veritas, Commvault, Veeam, Rubrik—Veritas is the most profitable. And of those companies, Cohesity has been the fastest growing per IDC. We’re combining the fastest growth with the most profitable. That’s the key: speed and scaling up. Part of the reason is they have an installed base that’s loyal to them, that keep renewing with them, especially in international markets, federal, and so on. So we’re very excited about the combination of growth and profitability.
Transaction Expected To Close In Late 2024
General timeframes, with me having been involved in many of these kinds of deals, we say six to nine months as it goes through the regulatory process. This is a smaller transaction than HPE’s acquisition of Juniper or Synopsis’ acquisition of Ansys. This is a very fragmented industry. You know, we’re technically No. 8 and Veritas is technically No. 3 in the data protection market, according to IDC. But together we do a lot more in data security and data management. So we’ll go through that process and estimate it will take six to nine months. …
We have an integration office that will work through this. But we have a very public message that’s on our website to our customers. We’re sending out notes for our customers to watch a five-minute video I did on the deal, and to see our very crisp 10 bullet point product strategy and road map document that’ s on our website. And the exact same documents are on the Veritas website. Those are the messages on product and go-to-market that both sides are reinforcing with their respective customers.