M&A Alert—July 11, 2017

Arcserve acquires cloud-based backup and disaster recovery as a service company, Zetta.

Author: Eric Risley, John Ascher-Roberts, Eric Xu

Target:

Buyer:

Transaction Size: Undisclosed

Transaction Overview

On July 11, 2017, Arcserve, a portfolio company of Marlin Equity, announced the acquisition of Zetta, a provider of cloud-based backup and disaster recovery solutions.  Architect Partners acted as the exclusive financial advisor to Zetta in this transaction.

Target Description

Zetta’s offering provides mid-sized organizations with direct-to-cloud disaster recovery as a service (DRaaS) and backup as a service (BaaS) to quickly and reliably protect, access and recover virtual and physical data without the need for extra hardware.  Zetta has over 2,100 customers sold through a direct sales model and through over 500 managed service providers and manages its own datacenter infrastructure.

Jeff Whitehead, CTO and Lou Montulli co-founded the Sunnyvale-based company in 2008.  Zetta raised $47 million in funding from investors including Amidzad Partners (Pejman Nozad), Foundation Capital (Bill Elmore, Skip Glass), Industry Ventures (Ken Wallace), and Sigma Partners (Greg Gretsch).

Buyer Description

Based in Minneapolis, Minnesota, Arcserve provides data protection and availability solutions tailored for midsized enterprises.  Arcserve’s flagship product, Unified Data Protection (UDP), offers a variety of solutions to meet their customers’ needs, including high availability for near-zero downtime, a hybrid backup and disaster recovery model that combines on-premise hardware with the Arcserve Cloud, and email archiving through its recent acquisition of FastArchiver.  The comprehensive solution works across cloud, virtual and physical systems and is controlled through the Arcserve online dashboard.

Marlin Equity, a Hermosa Beach-based private equity firm, acquired Arcserve from CA Technologies for $170 million, according to CA’s 10Q, in July of 2014.  Michael Crest, former CA SVP & General Manager of Data Management, led the management team as CEO upon the carve-out.

Transaction Parameters

Arcserve is acquiring Zetta for an undisclosed amount.

Comparable transactions include HPE’s acquisition of SimpliVity in February of 2017 (undisclosed), Carbonite’s acquisition of Double-Take Software in January of 2017 for $65.3 million (2.4x–3.0x 2017 revenue), IBM’s acquisition of Sanovi Technologies in October of 2016 (undisclosed), Barracuda’s acquisition of Intronis in September of 2015 for $65 million (4.3x–6.5x LTM revenue), and Microsoft’s acquisition of inMage in July of 2014 for $90 million (3.2x LTM revenue).

Strategic Rationale

Zetta allows Arcserve to immediately begin offering customers a direct-to-cloud offering branded Arcserve UDP Cloud Direct.  This perfectly complements Arcserve cloud backup and disaster recovery offerings, which are based on a hybrid model that requires a hardware component to back up first to an on-premise server and then to a server in their cloud.  The new UDP Cloud Direct offering will be ideal for businesses that prefer a direct-to-cloud solution that doesn’t require onsite hardware.

Zetta’s advanced replication technology offers competitive differentiation today and will be integral to the release of a new solution that is anticipated to deliver a near-zero data loss recovery point objective (RPO) with a nearly instant recovery time objective (RTO) within the next 12 months.

Architect Partners’ Observations

Disaster recovery is rapidly becoming less of an option and more of a necessity for organizations because of increasing downtime costs and data loss concerns.  According to Infrascale, the average cost of an hour of downtime for a mid-size business is $74,000, with that cost rising above $700,000 for larger enterprises.  Recognizing this, Gartner estimates that 30% of organizations plan to leverage backup for use cases such as disaster recovery by 2020, which is up from 10% in 2016.  The result is a disaster recovery as service market that is estimated to grow from $1.7 billion in 2016 to over $11 billion in 2021 at an estimated 45.9% compounded annual growth rate according to a MarketsAndMarkets report.

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