Imation Buys Nexsan In $120M Push To Expand Storage Business

Imation has acquired Nexsan, a move that will help significantly widen Imation's storage solutions to include disk-based and flash storage-based primary and secondary storage technology while giving Nexsan the size needed to scale its business.

The $120 million acquisition of Nexsan gives Oakdale, Minn.-based Imation, which is better known for its archiving and backup storage business, a huge 11,000-plus customer base and an active partner base as it looks to expand its storage footprint.

Under Imation, Nexsan will be run as a wholly-owned subsidiary of Imation headed by current Nexsan CEO Philip Black. Operations will continue to be managed from Nexsan's existing Thousand Oaks, Calif.-based headquarters.

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Nexsan provides the technology and partner base to continue Imation's transformation into a provider of data security and tiered storage solutions, said Ian Williams, president of tiered storage and solutions at Imation.

Imation in 2011 made a series of strategic acquisitions in the data security market, including USB flash storage security provider IronKey, data encryption developer ENCRYPTX, and authentication technology developer MXI.

With Nexsan, Imation gets tiered storage technology as well as a unified storage offering that combines file and block storage into a single system, Williams said. Nexsan's business model with its 100-percent channel focus is also a beneficial for Imation, which has the same focus, he said.

"We evaluated several storage companies, and were impressed by Nexsan's technology," he said. "And Nexsan has channel expertise second to none."

Black said that Nexsan has been religiously channel-oriented from its beginning 10 years ago, and that in Imation it has found a partner that is just as committed to working with the channel.

"Our channel partners are going to love this," he said. "There are no changes for them. But now they can say, Nexsan is a billion-dollar company, not a small company many customers may not have heard of."

The fact that Nexsan will continue to be operated independently is a big plus for solution providers, said Joe Kadlec, vice president and senior partner at Consiliant Technologies, an Irvine, Calif.-based solution provider and longtime Nexsan partner.

Consiliant also partners with Hitachi Data Systems on enterprise and midrange primary storage, Kadlec said. "Nexsan has been very good for customers that don't need the Hitachis of the world," he said. "We have customers with a variety of storage vendors, and Nexsan fits well with their secondary or tertiary storage requirements with products that provide bulk storage at an attractive price."

NEXT: Imation Gets Tech, Nexsan Gets Critical Mass

Nexsan has a great business model with its channel-only focus, Consiliant's Kadlec said. "It has been a very good partner," he said. "If Imation lets Nexsan run as a wholly-owned subsidiary, it will work well for us."

For Nexsan, a privately-held company with annual revenue of just over $80 million that has been profitable for many years on an EBITDA (earnings before interest, taxes, depreciation, and amortization) basis, a primary reason to be acquired by Imation is to gain critical mass, Nexsan's Black said.

"In the long run, storage companies need to be billion-dollar companies," he said. "Nexsan had been doing really well, but we were a small company."

Nexsan's acquisition by Imation is the latest in a long-running consolidation of second-tier storage vendors.

Black said that the consolidation in the industry is being pushed by a need for larger companies to acquire the kind of storage technology that they are not developing.

"The big guys -- HP, IBM, Dell -- are unable to create their own storage technology," he said. "EMC since it developed Symmetrix has not been able to generate its own technology. Small companies generate the IP [intellectual property] needed by the big guys. So the consolidation is not because the small guys can't succeed on their own."

When Imation looked at potential acquisition targets, it found a lot of smaller companies that were heavily weighted towards primary storage, which is not a focus of Imation, Imation's Williams said. "The Imation strategy has been more in terms of backup and archive storage," he said. "But primary storage is a core part of what Nexsan brings to the table."

Black said that, over the long term, it is hard to be in the storage business without primary storage. "It's very important to have a disk-based offering to succeed," he said. "Nexsan really didn't focus on primary storage until the last three years, but going forward, primary and secondary storage will merge."

Imation's acquisition of Nexsan has its detractors.

Karl Chen, chief marketing officer at Starboard Storage Systems, a Broomfield, Colo.-based developer of hybrid disk and flash storage system, wrote in a statement emailed to CRN that the deal values Nexsan, which pulled out of a potential IPO a few years ago, at only 1.5-times 2011 revenue.

While most of Nexsan's 11,000 installations are JBOD (just a bunch of disks) arrays, the IP for its new NTS5000 unified storage systems is based on the ZFS file system, which is controlled by Oracle, Chen wrote.

"Imation has been mostly an archive tape cartridge provider trying to move into storage systems with their acquisition of the ProStor RDX [InfiniVault] product more than a year ago," he wrote.

PUBLISHED JAN. 2, 2013