Imation Buys Nexsan - Surprise!?

Some things can manage to be both a surprise, and yet also strangely unsurprising, simultaneously… this, of course, is because everything is a matter of perspective. From one perspective, therefore, the fact that Imation will be writing a $105M check (plus another $15M of stock) to purchase a primary storage company will only be a surprise to those people—which frankly, could be quite a few!—who were not aware of Imation’s declared strategic intent to become a broad-portfolio midrange storage vendor. From another perspective, the fact that Nexsan has been bought by Imation (you can hear the “who!?” or, more likely, the “why?” from here) could well have caused a few New Year’s eyebrows to be raised.

A quick primer for those that need it:

  • Imation is a $1.3B erstwhile 3M spin-off, that has a well-recognized global brand that has been focused—at least until relatively recently—on consumer data storage products as well as being a leader in enterprise tape media. Recent acquisitions have gradually changed that, as the company seeks to transform and move itself into more lucrative adjacent markets. The Nexsan purchase also signals an internal realignment to drive this new focus.
  • Nexsan is developer and provider of disk-based storage systems (with toes in the solid state, software, cloud, and archive markets, too). Although VC-backed, it is operationally and financially self-sufficient, with 2011 revenues of $82M. With genuinely good IP, a maniacal customer-care focus and channel commitment, Nexsan has over 30k systems installed at over 11k end-users.

So, why the marriage? Well, no surprise here, it once again depends on your perspective.

A less-than-generous answer would be that it works for both parties, since neither of them wants to be left standing around when the lights come on at the end of the party. "Pairing off" (more formally called consolidation in the business vernacular I believe!) has been moving along steadily for a few years now in the storage world…there are few generally capable and well-proven vendors at an affordable price for an acquirer like Imation to look at, and—for Nexsan—a decreasing pool of potential suitors. If this perspective is correct then it will have provided motivation to both sides to make a deal as the storage market continues to move away from mid-sized players as such vendors (think 3PAR, Isilon, and Compellent for instance) have been acquired, and the market has instead coalesced around big "consolidated systems players" on the one hand, and new fast-growing or failing start-ups on the other. Nexsan is not in either camp—it had a relatively stable business built equally around ardent-fan users, channel partners, and dramatically capable technology—so, to succeed, something had to change.

A far more generous and positive perspective is that this provides much needed elements for the new combined entity to have the potential to jointly build a new and relevant storage presence in the SMB space. Now, let’s not pretend this is easy—there’s a cadre of strong and determined competitors out there for Imation to take-on. That said, the SMB market is vibrant and growing, and is a space where channel abilities and loyalties are crucial determinants of success. However, Nexsan didn’t really have the sort of reach and momentum to leap the next growth hurdle, since it had to keep investing to keep a relevant and capable product portfolio (which, by the way, it has done really well). Meantime, while Imation has expressed a desire to become a full storage player for a while, developing that organically isn’t as easy as those outside this business often think. So, Imation has a brand and the sort of reach (both globally and also into buyers) that should help Nexsan product adoption, while Nexsan has product "chops" and channel-abilities that should help Imation’s corporate adaptation.

What’s my perspective? Surprising as Imation’s move into this space may be to some, it is taking a pragmatic approach and acquiring steadily to build a capable portfolio (having already bought small security companies and the ProStor RDX removeable-disk based automation systems in the last couple of years). You can’t magically manifest a whole strategy overnight, but this marks a notable step. While it is the "acquirer" in this case, there’s a balance to what the two entities bring to the table that should preclude the in-fighting and NIH syndrome that can cripple acquisitions. The open question is whether Imation has sufficient scale and resources to make a dent in a market that has so many massive dominant incumbents; that said, a long term view of the storage market shows far move movement and change than a snapshot would suggest—so the opportunity is there, if Imation has the determination and patience to parlay its breadth and Nexsan’s products into relevance and success.

Of course this is just a step on the path: There are still portfolio gaps before the new Imation "Tiered Storage" business unit has all the pieces it needs—more enabling software is an obvious need. But there are also opportunities to be optimized, such as the very impressive Assureon archiving system that Nexsan has not been able to grow strongly, and yet which fits really well with Imation’s data security background, expertise, and leaning.

Nothing in this business is a slam-dunk of course, but this somewhat unsurprising (!) move might just have the capacity to surprise us all down the road…when of course, hindsight will provide the perfect perspective!

Topics: Storage IT Infrastructure