Who Is For Sale This Time?

It seems the WLAN acquisition rumor mill is hot again after a recent drop in Aruba Network (ARUN) shares nearly a week ago. Still not trading near its most recent trough of $4.29/share on July 14, according to Google Finance, I am not convinced that the next acquisition announcement will involve Aruba.

The company, publicly traded and still letting the ink dry on it's government go-to-market partnership with Foundry, still seems a formidable pill for any other networking powerhouse - Juniper being everyone's favorite contender - to swallow.

Since the Aruba IPO, I've viewed the vendor in a separate class from most others in the WLAN space. Since the time of their decision to go public, we've seen many others' marques give way to more familiar brand names as the Wi-Fi buying spree has heated up. With a market capitalization of over $400M today and 2007 revenues of $127.5M - a number they seem on track to hitting again based on their most recent quarter ended - it seems unlikely that a major vendor would be willing to fork over even 1/2 revenues for a business line extension into enterprise Wi-Fi.

Meru Networks is another vendor that's often viewed as an acquisition target, and one that I've looked at as an attractive target for at least one vendor, and seems a more likely target because:

  • Meru is still a privately held company and, therefore, does not bear any value inflation from a public market
  • The company has a solid, if somewhat unorthodox, architecture that appeals to resource strapped organizations such as those in education.

Meru seems a bit unlikely due to:

  • The vendor's somewhat different "virtual cell"(PDF link) architecture - while not a requirement to use its gear - may seem a bit of a risky strategy to established and staid networking vendors.
  • The company has had noting short of surprising success since they were first included in a Forrester Wave in 2007, which could make them a bit pricey, compared to the dwindling field of independent WLAN vendors.

So, there it is, I'm drawing a line in the sand that the acquisition target is not Aruba, perhaps Meru and potentially another, even smaller vendor. Nothing short of hedging on my part, I suppose, but I will say this: WLAN is a logical line extension for Juniper, and I'm not ruling out - but rather expecting - at least one more acuqisition before the year is out.

Check back to see if I'm eating my words or linking back to my sagacious prediction come December.

By Chris Silva

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re: Who Is For Sale This Time?

Chris, I think what might be even more interesting to consider is what will become of the company that isn't acquired. If it is Meru that's acquired, then the pressure on Aruba will become too intense. Aruba hasn't made a profit and isn't showing that it knows how to turn the corner.If Aruba is acquired, then the same can be said for Meru.I'm looking at this like a good, old fashioned game of musical chairs. Pretty soon, the music is going to stop and someone is going to end up out of the game.Full disclosure here: I work for Trapeze Networks. Of course I have a particular point of view on the contest.

re: Who Is For Sale This Time?

Good points on the fact that those left standing are in an strange position at the end of all this. I surmise that once the next big acquisition takes place (someone like Meru or Aruba) the others eventually get bought by "also ran" networking companies or even fall to larger competitors who already have a Wi-Fi story and just are looking for a decent customer list and existing line extension. Those that fall in the latter camp are going to go for pennies on the dollar, IMHO.

re: Who Is For Sale This Time?

So, I have seen a ton of speculation about Meru and Aruba as an aquisition target for Juniper, but I have to ask the question... What about Aerohive? They would have to be tremendously less expensive even than Meru and their technology seems to offer a compelling alternative to all of the other centralized management technologies out there. In addition the company was founded by ex-Netscreeners, so one has to wonder if some of there technology has been developed with a potential Juniper acquisiton in mind. Thoughts?

re: Who Is For Sale This Time?

Chris,Thanks for reading and thanks for your comment. In all honesty, its anyone's guess. I'm not as sure about Aruba being as attractive given price. While their stock price may have suffered a bit of a blow over the past year or 18 months, but the IPO drove customer interest and at a 1.5 to 2x revenue multiplier, they'd be pricey.Aerohive is definitely interesting both in terms of technology and in terms of potential price. One thing that may hurt them, though, is that they're still justifying their model and associated access point price to the larger market. Their non-traditional approach may deem them a bit of a risky bet to someone like Juniper. However, at the recent pace of the market, I'm likely to be eating those words sooner rather than later.

re: Who Is For Sale This Time?

Hi Chris, what's the status. You said December ;)Why is it taking so much time as it seems to me that the opportunity is today and Juniper migth be out of the mobility game if they wait too long.Franck

re: Who Is For Sale This Time?

It's taken a bit longer than initially expected, I've heard something about the economy doing something, not sure, but that may be affecting it :)Overall, there's just a diminishing lack of folks in the networking world in a position to expand product lines, especially now. The suspects that are likely buyer candidates have not changed.I think we'll see some movement as we come out of our darkest hour, when non-critical investments and ROI justifications not driven by headcount reduction or equivalent are again on the table.Who will be on the table, same suspects as well, I imagine. Will Aruba be bait? Could be, but not if they continue to rack up numbers in the direction of their most recent earnings (http://is.gd/nfhG)