So let’s dissect the press release News Analysis style:
PALO ALTO, Calif. and SUNNYVALE, Calif., Mar. 2, 2015 — HP (NYSE: HPQ) and Aruba Networks (NASDAQ: ARUN) today announced a definitive agreement for HP to acquire Aruba, a leading provider of next-generation network access solutions for the mobile enterprise, for $24.67 per share in cash. The equity value of the transaction is approximately $3.0 billion, and net of cash and debt approximately $2.7 billion. Both companies’ boards of directors have approved the deal.
MyPOV – This marks the first acquisition under CEO Meg Whitman, who previously prescribed a ‘pause’ on the acquisition side. We have been a critic of the strategy as HP clearly needed more R&D and product innovation, due to the lack of innovation production under the long tenure of former, former CEO Mark Hurd. The on / off though has hurt e.g. the Software group that has not been growing organically as it should.
Aruba is a Sunnyvale-based industry leader in wireless networking with approximately 1,800 employees. The company had revenues of $729 million in fiscal 2014, and has reported compound annual revenue growth of 30 percent over the last five years.MyPOV – Aruba Networks (going forward just Aruba) – has capitalized well on the need and convenience of Wifi in the enterprise world. In the ‘cloud only’ enterprise we see only a need for Wifi on premise, as the whole networking market and market place will be transformed. It is good to see HP capitalizing on this trend early. How the market has changed is that HP acquired the venerable 3COM back in 2010 for 2.7B. And that included 3COM IP from 30+ year’s history, including network security and more.
Aruba boasts a highly regarded innovation engine and specialized sales, marketing and channel model, complementing HP’s leading networking business and go-to-market breadth. Together, HP and Aruba will deliver next-generation converged campus solutions, leveraging the strong Aruba brand. This new combined organization will be led by Aruba’s Chief Executive Officer Dominic Orr, and Chief Strategy and Technology Officer, Keerti Melkote, reporting to Antonio Neri, leader of HP Enterprise Group. With this move, HP will be uniquely positioned to deliver both the innovation and global delivery and services offerings to meet customer needs worldwide.
MyPOV – Good for HP to keep the Aruba team in play, but life will be different than ever before for the former Aruba employees. The way how they adopt and make either life better (and hopefully not worse) is going to be key to watch in the next quarters. Aruba related revenue should grow as HP gives Aruba access beyond what the (estimated) 300+ Aruba sales team could reach.
With the shift to mobile, enterprise networking needs are exceeding the capabilities of legacy infrastructure. At the same time, organizations are shifting rapidly to mobility-centric workplaces for their employees, guests, customers and students. The next-generation 802.11ac Wi-Fi standard is critical in enabling this trend. This new technology will support the faster speeds and access to cloud applications that end-users expect. Enterprises need comprehensive, integrated and secure networking solutions to help them transition legacy systems to the wireless edge. Today’s announcement directly addresses these market trends.
MyPOV – Agreed – we only see new buildings and forward looking clients skipping the wired LAN infrastructure for complete wireless network setups. Wireless networks usually pay in a few quarters when measuring ease of use and productivity gains for employees. More nifty ROI strategies exist with offloading corporate mobile plans over to Wifi as needed.
“Enterprises are facing a mobile-first world and are looking for solutions that help them transition legacy investments to the new style of IT,” said Meg Whitman, Chairman, President and Chief Executive Officer of HP. “By combining Aruba’s world-class wireless mobility solutions with HP’s leading switching portfolio, HP will offer the simplest, most secure networking solutions to help enterprises easily deploy next-generation mobile networks.”
MyPOV – HP needed to bring some value to the acquisition – but I am not sure how much value the HP (former 3COM etc.) switch technology can add as the wired past required very different switches than the mobile / Wifi consumption presence. Start to think about load…
“Together with HP, we have a tremendous opportunity to become an even greater force in enterprise mobility and networking,” said Mr. Orr. “This transaction brings together Aruba’s best-of-breed mobility hardware and software solutions with HP’s leading switching portfolio. In addition, Aruba’s channel partners will have the opportunity to expand their businesses with HP offerings. Together, we will build on Aruba’s proven ‘customer first, customer last’ culture, creating an innovative, agile networking leader ideally positioned to solve our customers’ most pressing mobility, security and networking challenges.”
MyPOV – Great plans, good luck with that. And kudos to mention the partner network – will be interesting to see how the new HP / Aruba will deal with overlaps, capacity, conflicts etc. – see below in the implication section.
HP and Aruba believe that by combining complementary product portfolios and go-to-market approaches they will be able to accelerate revenue growth and strengthen the financial performance of the combined HP Networking business, and create a leading competitor in the $18 billion and growing campus networking sector. Overall, HP expects the acquisition to be accretive to earnings in the first full year following close.
MyPOV – Well congrats today – the work starts tomorrow. HP will have to make sure it does not break Aruba culture and drive and Aruba needs to learn to be part of a large mega enterprise. Both obvious things at hand – but way too often broken in the high tech takeover world.
Implications, Implications, …
Implications for CustomersAs usual with acquisitions customer needs to look at securing existing build out and roadmap commitments. We advise to quickly look at the acquisition nature for the individual plans – they could be beneficial or a threat. In the case of a threat quickly go back to both vendors to commit to roadmap product plans, services. For a roadmap commitment make sure the right executives from HP are in the room to make the commitment. If advantages can come from the HP portfolio, quickly negotiate switch outs and replacements at defined conditions to long term purchase plans.
Implications for PartnersPartners to both vendors are in a good spot, but make sure to bring in the synergies and chart the value proposition accordingly. Reach out to HP for partnership re-assurance.
HP Partners only – Understand your Wifi strategy and reach out to HP to determine your partner contract. As a fallback look for replacement product strategy for Wifi.
Aruba Partners only – Make sure HP understand the unique value your organization brings to the table and make sure that is seen and understood by HP executives ASAP. As a fallback look for competing products.
Implications for CompetitorsTime to chart the future Wifi strategy, there are a few – but not too many vendors left. As of now they will likely command a premium, so plan and move shrewdly. Also expect more entrenched partnerships to be created and use that to your advantage.
Implications for HP / ArubaHP will have to make sure the two company cultures merge well and remain an agile and key player in the Wifi market. Easier said than done. Aruba will have to make sure to retain key employees to make the acquisition a success. Not every Aruba employee will be ‘thrilled’ to become a HP employee.
MyPOVKudos to HP and Whitman to go back out on the acquisition trail, something in my view the company has abstained for too long. If they company was able to execute them given all the work management has with the separation into Enterprise and Consumer, is of course something Whitman needs to make the call. But in my view HP cannot wait longer for getting a more attractive product portfolios in place that it does not have the time (and in networking even maybe not the talent) to develop organically. The challenge now moves from having eliminated whitespace to make the acquisition work.
And finally- why was this an enterprise and not consumer acquisition? If every HP printer is a wifi terminal powered by Aruba… ok heading for the Caribbean now.
|An Aruba beach (not part of the acquisition...)|
Find more coverage on the Constellation Research website here.
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