The Data Storage Gold Rush - Who's Left?

The mad scramble going on today in the data storage market may not be the sort of gold rush that gives us classics like "The Treasure of the Sierra Madre," but it is a gold rush all the same. Shareholders have seen soaring valuations, companies have seen the competitive chess board morph in front of their eyes and outside observers have had plenty to talk about as bids and rumors roil the markets. 

With the recent announcement of a deal between Dell (Nasdaq:DELL) and Compellent (NYSE:CML), it is fair to wonder whether the land grab is close to running its course. There is no doubt that storage is going to be a key component of corporate IT as long as there is IT, but it looks like a combination of scarcity and a need to digest prior deals may eventually calm the market.

The Big Boys
There is no question that there are plenty of options when it comes to corporate-level data storage. EMC (NYSE:EMC) is still a major player in the field, along with competitors like NetApp (Nasdaq:NTAP), IBM (NYSE:IBM), Hewlett-Packard (NYSE:HPQ), Dell  and Hitachi (NYSE:HIT). Within this wide array of vendors is an equally wide array of approaches and technologies, ranging from EMC's efforts to meet almost any conceivable storage need to NetApp's much more focused approach.


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Compellent Takes A Tough Bid

Ever since Dell (Nasdaq:DELL) was thwarted by Hewlett-Packard (NYSE:HPQ) in its attempt to buy 3Par, market-watchers have been playing the match-up game trying to guess which company Dell would target next. As a young and emerging player in the storage space, Compellent (NYSE:CML) had been one of the names in play, and the stock had more than doubled in the last three months. 

As it turns out, those rumors had a good news/bad news aspect to them. While Dell's bid for Compellent did in fact materialize, it was at a price that was significantly below the going rate for Compellent shares.  (For more, see The Wacky World Of Mergers And Acquisitions.)

An Odd Path to a Deal 

This deal followed a road a little less traveled than the norm. Most likely in response to chatter about a deal, Dell and Compellent issued a press release last week indicating that they were in serious talks about a deal ... and that the deal would be an all-cash transaction with a price at or around $27.50 per share.

Not only was it rare to see that sort of "we think we have a deal, and here's the deal, but it's not a deal ...yet" sort of release, but it was rare to see a bid that was pretty substantially below the going rate for the stock - especially in today's hot tech M&A market. Oddly enough, there does not seem to be a "go shop" opportunity as part of the deal (or at least not one highlighted in the companies' press release). It has become de rigeur for certain law firms to file nuisance suits in the wake of announced deals claiming that the selling company hosed its investors by selling too cheaply, and this sort of deal would seem to be asking for that kind of headache. 

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EMC Buys More Storage Space

EMC (NYSE:EMC) is making one thing abundantly clear - if it has to do with enterprise storage, they are going to have a piece of it. From the first Symmetrix back in 1990, to the latest in software/hardware hybrid, EMC has always been at or near the edge of what is possible with large-scale storage. Now the company is buying Isilon Partners (Nasdaq:ISLN) in what may prove to be a stronger foothold in the next major type of corporate data storage technology. 

The Deal
EMC is paying $33.85 a share in cash for Isilon, a deal that represents a 29% premium for Isilon shareholders and a nearly $2.3 billion bill for EMC. With a termination fee of $100 million attached to the deal, though, it is not unthinkable that other bidders could come into the game.


What EMC Is Getting
Isilon is a very small company in data storage - trailing revenue of less than $200 million, compared to EMC's $16.2 billion - but a very promising one all the same. Isilon specializes in highly-scalable, clustered storage systems that store very large continuous files, and has been involved in this scale-out network attached storage market virtually from the beginning. This market exists because unstructured data is not easily handled by traditional systems, but companies involved in life sciences (sequencing data), media (movies) and energy (seismic data) find they need a better way of handling these huge files. (For related reading, see Xyratex An Interesting Data Storage Play.)

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