Hewlett Packard Enterprise Pays $650 Million In Cash For SimpliVity
SimpliVity – the Westborough, Mass.-based maker of so-called hyper-converged infrastructure (HCI) founded in 2009 – has come to a bittersweet end.
After all, the last time it raised money – in March 2015 investors forked over $175 million – SimpliVity was valued at $1 billion. Now those Series D investors are taking a $350 million haircut since HPE announced it would pay $650 million in cash.
What’s more, the HPE purchase was rumored a few months ago at a whopping $3.9 billion.
I first met SimpliVity’s CEO in September 2012 where he showed me a PowerPoint presentation of the company’s soon-to-launch OmniCube. We’ve spoken frequently since then and I believe he was hoping for an IPO that would value the company in the billions.
But in all likelihood the frigidity of the tech IPO market that began in the fall of 2015 coupled with rival Nutanix’s less than stellar IPO last September – on January 17 the stock traded 19% below its first-day close – conspired to make HPE’s offer the best available alternative.
HCI – a $2.4 billion market growing at 25% a year – saves companies money by combining compute, storage and networking into a single system – running proprietary software on a standard server. SimpliVity runs on hardware from Lenovo, Dell, Cisco and Huawei as well as HPE.
HPE CEO Meg Whitman lauded the acquisition. As she said, “This transaction expands HPE’s software-defined capability and fits squarely within our strategy to make Hybrid IT simple for customers. More and more customers are looking for solutions that bring them secure, highly resilient, on-premises infrastructure at cloud economics. That’s exactly where we’re focused.”
Antonio Neri, executive vice president and general manager of HPE’s Enterprise Group, said that HPE’s sales force will boost revenues of their combined HCI offerings. According to Neri, “HPE will bring together its best-in-class infrastructure, automation and cloud management software with SimpliVity’s industry-leading software-defined data management platform, to deliver the industry’s only ‘built-for-enterprise’ hyperconverged offering. And, the combined best-in-class technology will be backed by HPE’s leading financial services and go-to-market resources. We believe this will not only bring better options to our current customers but to the entire market.”
Bruce Sachs, an early investor from Charles River Ventures, seems pleased by the deal. As he said in a January 17 interview, “We helped seed the company and they were operating out of our offices at the beginning. The company executed well and we are happy with the result.”
Last year SimpliVity seemed to be growing smartly. Gartner categorized SimpliVity in the leader quadrant of its October 10, 2016 Magic Quadrant For Integrated Systems report. SimpliVity said it had “750 employees worldwide and doubling its year-over-year revenue with more than 6,000 systems shipped globally since 2013. [It had] a reseller network of more than 1,000 partners in 73 countries, enabling the company to generate 50% of its sales outside of the Americas.”
Sachs — who brought the experience of running two enterprise technology companies to SimpliVity’s board – acknowledged that the financing environment has changed. “In the fall of 2015, technology IPOs stopped and that cascaded into the financing environment and into valuations.”
Sachs said that the $3.9 billion rumored price was not something on which he could comment but he gave me the impression that it was way too high a number.
Indeed in 2016, there were hints that SimpliVity was not profitable and perhaps was trying to trim costs in a bid to raise capital or sell out. According to SearchDataCenter, the company had three rounds of layoffs this year affecting people in “sales, customer support and marketing, while engineering and development teams were spared after the first round, according to a former HCI employee who was laid off this summer.”
SimpliVity viewed this as normal workforce upgrade. “As part of standard operating procedure we continuously employ periodic top-grading and resource balancing steps. However, the company is still hiring very fast globally, and are actively recruiting to add headcount across most dimensions of the business,” a SimpliVity spokesperson explained last October 10.
Kempel – who on January 17 deflected my request for comment to HPE – was great at setting and achieving business goals according to Matt Murphy, the Kleiner Perkins partner who spoke to me about SimpliVity in October 2012.
Murphy led a September 2012 $25 million investment in the company and described Kempel as “an execution machine.”
Kempel should be. In an October 2012 interview, Kempel told me that as a Major in Israel’s Defense Force, at 26, he was a decorated, second in command of an elite unit, and led “meticulously planned and scrupulously executed missions far away from Israel and way behind enemy lines.”
Following degrees from Tel-Aviv University and Harvard Business School, he started and grew a division of EMC “from zero to multi hundred million dollars in annual revenue.”
After that, he partnered with the “technologically brilliant” Moshe Yanai to start Diligent Technologies. In 2008, Kempel sold Diligent to IBM – which called Diligent “the best run small company IBM has ever acquired.”
Kempel told me that he expected 2017 to feature a shift in SimpliVity’s revenues from low-margin hardware to high-margin software. As he explained last October, “In 2017, we expect that over 80% of our revenues will come from software. Though our per-customer revenues may be lower than they would be had we also sold low-margin hardware, we enjoy very high software gross margins.”
It’s unknown whether HPE will realize that goal.
Kempel sold a second startup to a big technology company. He fell short of his goal of an IPO and I am wondering if he will take his winnings and try again.
Reposted from Forbes
About the Author
Kenny Ahnemann has over 20 years of experience with VMware in corporate production environments in the IT industry. He has consulted on projects for global corporations, healthcare facilities, Las Vegas casinos, nuclear power plants, as well as NASA. He has a passion for what he does and believes in helping others on their journey through the always changing IT landscape.