The cloud management software market is set for further consolidation following a flurry of recent deals, according to industry sources.
Cloudscaling, Embotics, Eucalyptus, Flexiant, HotLink, OnApp, RightScale and ServiceMesh were pegged by industry sources as potential targets, as each has tools that help enterprises manage assets in the cloud, sources said.
Amazon, AT&T, BMC, CA Technologies, Cisco, Citrix Systems, Dell, Hewlett Packard, IBM, Oracle, Rackspace, SAP, Verizon and VMware were viewed by the sources as potential acquirers. These companies need to add new capabilities, said Roger Burkhardt, former CEO of Ingres, an open source database company. IT managers must deal with an increasingly complex environment, where they manage public clouds, private clouds and network applications. The tools available are not enough to meet customer demands, he noted.
Cloud management software refers to tools that help companies build, deploy and manage their cloud applications, services and data they keep in the cloud.
Embotics CEO Jay Litkey, whose own company provides tools for managing private clouds, noted two recent deals in the space as evidence of buyer interest — Dell’s purchase of Enstratius, a Minneapolis-based cloud management software vendor, for an undisclosed sum in May, and RedHat’s USD 104m acquisition of ManageIQ in December.
Deal activity in the sector will only accelerate, said Litkey, and companies like his own are likely to see interest from larger vendors.
HotLink CEO Lynn LeBlanc believes there could be M&A in the cloud management market for years to come. Simplifying administration of diverse environments remains key, she said. Her own company, which provides tools to create and administer multiple virtualization environments for cloud deployments, maintains relations with all the larger players because they might have gaps that require partnerships or M&A, she said. The company keeps in regular contact with investment bankers, and welcomes such contacts, within reason, so bankers can stay informed about its technology.
The best acquisitions occur not because of revenues, but because a company is strategic to the acquirer, she noted.
RightScale, which provides a management dashboard to monitor cloud usage, will also make buyers’ radars, according to both Paul Burns, principal analyst at Neovise, and Jeff Kaplan, managing director at consultancy Think Strategies. RightScale’s tools make the company an attractive target, according to a September 2012 report by this news service.
Other potential targets, according to Burns, include Flexiant, which offers tools to prepare companies for cloud service environments, and Cloudscaling, which manages companies’ networks on OpenStack, an open source cloud operating system. OnApp, which builds companies’ storage for cloud deployments, and Eucalyptus, an open source cloud management platform that competes against OpenStack, will also likely interest larger suitors, Burns said.
ServiceMesh, another cloud management platform, is another likely target, according to Jason Bloomberg, analyst with ZapThink. He said he was surprised it has not already been purchased.
Large companies providing software and services for managing complex server environments will continue to add cloud management tools, according to Kaplan. Companies like BMC, CA Technologies, Dell, HP and IBM have all made a living from selling servers and helping corporations manage their data centers, he said. They are now buying capabilities to help manage a hybrid of cloud and on-premise servers, he said.
IBM has bulked up in cloud management with two recent deals, according to Bloomberg. It purchased Platform Computing in 2012 and last week bought service provider SoftLayer for USD 2bn. SoftLayer, while a service provider, also has cloud management capabilities, noted Bloomberg and Kaplan.
Oracle and SAP are “definitely looking” at cloud management companies, as are service providers such as Verizon and AT&T, an industry banker said. Dell, which is planning to go private, and HP, which has internal problems, might not be as active, he said.
Rackspace could add management functionality to its cloud services, Kaplan said. And Amazon, which has done “tremendously well” by surrounding itself with third parties, could be a buyer. “At a certain point enterprises will want Amazon to supply management functions for the cloud,” Kaplan said.
Cisco and Citrix Systems are likely to make buys to round out their portfolios, said Burns. Other cloud management software buyers could include companies like VMware and Cisco, according to Litkey.
Acquirers will pay higher valuations for high performance or niche technology, Kaplan said. But cloud management includes a lot of technology that’s difficult to develop and there are no standard revenue multiples by which to value them, the industry banker said.
by Kevin Nafziger and Stuart Newman