A Bravo New World for Network Infrastructure and Management Solutions (A Thoma Bravo New World, that is….)

posted by Tracy Corbo   | April 12, 2012 | 2 Comments

Even people outside of the technology sector recognize the Cisco brand. Cisco has a very strong global presence that transcends the technology sector. However as one dives deeper into the network technology sector, especially into the networking infrastructure segment the names of these technology vendors may not transcend much beyond the target user group within IT. These company names only make an appearance in major trade press as part of an acquisition story by a major IT vendor. Consequently, it is no surprise that the value proposition of these types of solutions do not readily translate to outside audiences, in the same way that social media solutions might especially to investment firms. Network infrastructure solutions are an integral part of the network architecture. There is a wide range of vendors in this space and the ones that have been in this market for more then ten years generally have been growing steadily despite current economic trends. This has not gone unnoticed by the investor community at large, because over the last several years, actually since the market bust, I have received more phone calls from investors looking to better understand this technology sector.

Thoma Bravo is a private equity firm that focuses on making investments in established companies, primarily in the US, that have a history of profitability and with earnings greater than $10 million. They do not invest in startups, but rather established businesses. Thoma Bravo implements an approach that is referred to as “industry consolidation” or “buy and build” investing. Network infrastructure vendors fit nicely into their model that looks at “fragmented industries to identify high-potential sectors.” This approach would not be possible without the willingness to understand the business and how it plays in the market as a whole. Thoma Bravo looks for ways to grow revenue through internal as well as external stimulus. Thoma Bravo seeks to find synergy between companies and integrating them to expand their revenue opportunity. The current technology portfolio contains a mix of storage, security, management, and networking infrastructure companies. In some cases the companies are stand alone entities and in others such as Attachmate, Thoma Bravo created a privately held enterprise software holding company, Attachmate Group and through that holding made further acquisitions that include: Attachmate, NetIQ, Novell and SUSE.

Most recently Thoma Bravo has had an eye on networking infrastructure vendors and in February 2012 acquired Blue Coat Systems (web security and WAN Optimization) for 1.3 billion. In April 2012, Thoma Bravo acquired all outstanding shares, totaling approximately 60 million Euro’s for InfoVista (network management targeted largely at service provides) and took the company private.  Then again in April 2012, Thoma Bravo took a controlling interesting in Network Instruments (network and application performance solutions) of which the financial terms were not disclosed. In conversations with both Blue Coat and Network Instruments the overall impression was a positive one with both companies very excited over the infusion of cash into their business. Both companies were comfortable with the Thoma Bravo business model and felt it would allow them to grow the business more quickly than they could have on their own. Network Instruments is a perfect fit for Thoma Bravo and meets the criteria as a mature company with solid revenue growth. In January, Network Instruments reported that their 2011 revenue grew 21% compared to 2010. Blue Coat made a few missteps in their attempt to take on Riverbed head to head when they acquired Packeteer in 2008. At the time Blue Coat was publicly traded and direct comparisons between Riverbed and Blue Coat’s WAN optimization were not favorable to Blue Coat. With this acquisition Blue Coat is no longer publicly traded.  This will give Blue Coat time to regroup and get their WAN optimization story more in line with their core strength, web security, rather than trying to go head to head with Riverbed. InfoVista has been in the market for more than 17 years as a network management player with a solid presence in the European telecom market. InfoVista is no longer publicly traded. Spending by European telecom providers has been slow to recover making it difficult for InfoVista to grow revenue.  Thoma Bravo is focused primarily on US-based companies, so perhaps this can translate into some new US-based market opportunities for InfoVista.

The IP Network is a Critical Business Element

This is a good time for network infrastructure vendors. The growing dependency on the IP network within the enterprise makes the network a critical business element. Security, performance, and managing the health of the network are crucial components regardless of whether the technology is in a local datacenter or in a hosted cloud environment. Thoma Bravo is making investments in components that will remain critical now and for the foreseeable future.

The Thoma Bravo business model is about investing in established profitable companies, not start-ups or failing entities. There is good news here for customers, because Thoma Bravo only invests in organizations that they feel have genuine growth potential. The company is reportedly hands off, but does monitor company financial progress and will restructure the company if necessary for greater profitability and efficiency.  This is a much better scenario than if any of these vendors had been acquired by another large IT vendor. Network infrastructure vendors who are acquired by large IT companies rarely enjoy a long period of autonomy, if any, and the talent typically departs shortly after any contractual obligations are filled. In this case, the companies get the benefit of cash inflow, but without the heavy hand of bureaucracy and culture shifts found in large takeover acquisitions. Chances are good at least for the near term that the companies will be reinvigorated and without Wall Street breathing down their necks can better focus on the business at hand. This is a win/win for both customers and the vendors. There is even potential synergy with these three acquisitions, as we look forward towards greater IT role consolidation moving forward. It will be interesting to watch and see how this progresses.

2 Responses to A Bravo New World for Network Infrastructure and Management Solutions (A Thoma Bravo New World, that is….)

  1. mn says:

    Good article. Thoma Bravo does have a unique investing style. Would be interesting if they take a look at Extreme Networks.

  2. Pingback: When it's Buy vs. Build, Buy Always Wins | WAN speak | WAN optimization blog by Silver Peak

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