How Extreme Networks' $210M Acquisition Spree Is Set To Pay Off In $545M In New Revenue

Pulling the acquisition trigger at the right time for the best price is extremely tricky in the IT industry. Extreme Networks successfully pulled it off not once or twice, but a mind-boggling three times within the past 12 months.

San Jose, Calif.-based Extreme purchased strategic networking assets from Avaya, Zebra Technologies and Brocade Communications for a total of $210 million. Extreme is projecting that these three acquisitions will bring in a total of $545 million in annual revenue for its current fiscal year ended June 30, 2018.

"Saying we got a bargain is an understatement," said Dan Dulac, vice president of product management and strategy for San Jose, Calif.-based Extreme, in an interview with CRN. "We've just been the benefactor of these other businesses focusing on their core competencies and divesting the pieces that defocus them, which happen to provide us more focus in networking."

[Related: Extreme Networks Partners Placing 'Big Bet' On Growth Opportunity From Vendor's Expanded Portfolio]

Extreme partners agreed that the networking vendor played the M&A game to near perfection.

"We've been very impressed with their management team," said David Raftery, managing partner at Integration Partners, a Lexington, Mass.-based Extreme partner. "They have a very clear vision of where they're going, what they want to do and how important it is for their partners to come alongside their journey. … We're very bullish on Extreme."

Extreme's first acquisition was Zebra's wireless LAN and security technology for $55 million in October 2016. That deal provided the enterprise networking company with $115 million in sales in a deal that was accretive to earnings and cash flow for its fiscal year 2017 ended June 30.

Zebra acquired its wireless portfolio 2014 with its purchase of Motorola Solutions for $3.45 billion.

"Zebra's core competencies are really mobile device scanners, mobile printers, these things you see in retail environments, the warehouses, the handheld scanner devices, etc. – that's their core competency. They went out and acquired Motorola wireless. Well, about one year into it, they came to the realization that, 'Gosh, we don't have the sales expertise or the go-to-market expertise or partners to actually go in and compete with wireless against the Arubas, against the Ruckuses, against the Ciscos," said Dulac.

Dulac said Extreme had "tremendous negotiating leverage" when Zebra tried to offload the cost and expense of its WLAN business. Extreme is expecting Zebra's business to generate $115 million in annual sales.

Extreme then set its focus on unified communications specialist Avaya, which in January 2017 filed for Chapter 11 bankruptcy protection.

In 2009, Avaya acquired Nortel Enterprise's assets for $900 million in an effort to expand its UC and VoIP focus into more networking.

"Avaya said, 'Look, we're deploying these VoIP or voice or Wi-Fi solutions, we need an extension of our voice and UC in the network. So let's buy these networking assets so we have a holistic end-to-end solution.' But again, many years into it, their networking became the distraction. It became a financial anchor that was not growing and struggling because it was defocusing their businesses," said Dulac.

In July, Extreme acquired Avaya's networking business for $100 million. That provided Extreme with $200 million in sales in a deal that the company said will be accretive to earnings and cash flow for its fiscal year ended June 30.

"Because of the bankruptcy, we had purchase leverage to strike that great deal," said Dulac.

Extreme also revealed its intent to acquire Brocade's data center networking business in March for $55 million. Although there have been several delays in the purchase, Extreme expects to close on Brocade by the end of October.

Broadcom unveiled its intention to acquire Brocade for $5.9 billion last year. However, Broadcom said once the deal closes, it planned to immediately sell Brocade's data center business to Extreme and network-edge portfolio for $800 million to Arris International.

"Right out of the gate, Broadcom basically said, 'Look, we have no interest in these other networking assets. We're going to divest them straight away.' What they really wanted was [Brocade's] Fibre Channel technology," said Dulac.

Dulac said because of Broadcom's inability to sell the rest of Brocade's portfolio in a total bundle to a single buyer, "we were able to use that as negotiating leverage to take on and buy that asset."

Brocade sold other technology assets over the course of 2017. The vendor sold its Vyatta Software Platform to AT&T, its virtual application delivery controller business to Pulse Secure, and its virtual packet core business to Mavenir.

The Brocade deal provides Extreme with $230 million in sales in a deal that the company said will be accretive to earnings and cash flow for its fiscal year 2018 ended June 30.

Many vendors that once thought about expanding their total addressable market are now pulling back into their core competencies, according to Dulac, which is why Extreme was able to nab three networking assets for what it considered to be ideal prices.