Could Enterasys be looking at possibly acquiring rival Extreme Networks? There's been a flurry of speculation on that. Enterasys has made no bones about its intention to acquire a sizable company that will take it close to US$1 billion in annual revenue and better compete with Cisco and new enterprise LAN switch entrant Juniper Networks. Extreme and Enterasys both do about US$350 million in yearly sales.
At Interop last month, Enterasys said it is getting close to acquiring. Extreme would come at a bargain. Its market cap is about US$374 million and it has US$231 million in cash, making the net investment less than US$150 million. Product overlap would be significant, however. Both companies compete in the US$18 billion enterprise Ethernet switching market but are struggling to compete with Cisco's dominant 72 per cent share.
Extreme's share is 1.6 per cent while Enterasys' is 1.4 per cent, according to Dell'Oro Group. But Enterasys would be acquiring customers and share, not necessarily product, says Sam Wilson, co-director of communications equipment technology research at JMP Securities, which follows Extreme.
"They basically buy the customers and rip all of the cost out" by eliminating product, sales, marketing, development and operational overlap, Wilson says.
Wilson had no knowledge of an impending deal but said it's "not surprising".
"Extreme is a motivated seller," he said. "And it's badly in need of a restructuring."
Wilson said the Gores Group, a private equity firm that owns Enterasys, and Nortel are the "two most logical buyers" of Extreme. Extreme's been the focal point of buyout rumors over the years, with many believing Juniper would take them out as its entry into the LAN switching market.
Juniper instead developed its own LAN switches.
Enterasys said there's nothing to add beyond what it said at Interop; Extreme said it doesn't "respond to or comment about market rumors."