SanDisk to Acquire Fusion-io for $1.1 Billion in All-Cash Deal
Getting enterprise PCIe SSDs
This is a Press Release edited by StorageNewsletter.com on June 18, 2014 at 2:57 pmSanDisk Corporation announced a definitive agreement to acquire Fusion-io, Inc., developer of flash-based PCIe hardware and software solutions that enhance application performance in enterprise and hyperscale datacenters.
The acquisition will be an all-cash transaction valued at approximately $1.1 billion, net of cash assumed.
“Fusion-io will accelerate our efforts to enable the flash-transformed data center, helping companies better manage increasingly heavy data workloads at a lower TCO,” said Sanjay Mehrotra, SanDisk president and CEO. “Customers will benefit from the addition of Fusion-io’s leading PCIe solutions to SanDisk’s vertically integrated business model. We look forward to working with the world-class engineering and go-to-market teams from Fusion-io to provide high-value solutions to customers around the world.”
Under the terms of the agreement, SanDisk will commence a tender offer for all outstanding shares of Fusion-io for $11.25 per share in cash.
SanDisk will fund the acquisition with cash available on its balance sheet.
The transaction, which has been approved by the boards of directors of both companies, is subject to customary closing conditions, including clearance from relevant regulatory authorities and the completion of the tender offer.
It is expected that the transaction will close in the third quarter of SanDisk’s fiscal 2014 and be accretive to non-GAAP earnings in the second half its fiscal 2015.
“This transaction represents a compelling opportunity for Fusion-io’s employees, customers and shareholders,” said Shane Robison, chairman and CEO, Fusion-io. “Fusion-io’s innovative hardware and software solutions will be augmented by SanDisk’s worldwide scale and vertical integration, enabling a combined company that can offer an even more compelling value proposition for customers and partners.“
Goldman, Sachs & Co. acted as financial advisor and Skadden, Arps, Slate, Meagher & Flom LLP acted as legal advisor to SanDisk. Qatalyst Partners acted as financial advisor and Wilson Sonsini Goodrich & Rosati acted as legal advisor to Fusion-io.
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It's the sixth acquisition of SanDisk in flash technology (see table below), the most expensive being msystems in 2006 for 1.5 billion. The company already invested in enterprise SSDs with start-up Pliant Technology bought in 2011 for $327 million, but in devices with SAS interface, not PCIe, even if, at this time, the press release about this acquisition stated that Pliant has a roadmap to enter into PCIe.
The flash industry is consolidating at a high rate as there are too many SSD and all-flash subsystem makers.
$1.1 billion is a relatively low price for Fusion-io with an estimated annual revenue to be around $426 million for its fiscal year ended next June, even if its net loss reached an historical record of $30.7 million for the most recent published financial quarter ended last March, the fifth consecutive quarter with losses of more than $20 million, and remember that the all-SSD system firm accumulated deficit of $77.1 million until an IPO completed on June 9, 2011 where it raised $218.9 million, net of expenses, after raising $111.5 million since its inception in December 2005. The troubled public company was far to be back to profitability and quarterly revenue stagnates at around $100 million since two years.
Furthermore, the sum of $1.1 billion is "net of cash assumed". Fusion ended March period with cash and cash equivalents totaling $225.1 million, a decrease of $18.8 million from the prior quarter-end.
It's why already twelve law companies, supposed to defend Fusion-io's shareholders, began investigating on this acquisition (see today's news and add also Pittsburgh Law Office of Alfred G. Yates Jr., P.C.), estimating that $11.25 per share - a 21% premium over its closing price last Friday - is too low as the acquired firm was traded as high as $11.92 as of March 20, 2014 and remarking that analysts at Yahoo! Finance have set a $16.00 per share price target for Fusion-IO, approximately 42% more than what shareholders are expected to receive. When it went public three years ago, the SSD maker was valued at $1.48 billion.
Four days before the official announcement of the deal, we met in Paris Gary Orenstein, Fusion-io's SVP marketing for over three years, coming in Europe for an European press tour. He refused to comment on the financial situation of his company and, for sure, didn't know at all what was happening inside his own firm. Otherwise, this European tour would have been cancel and he would not have left his San Francisco Bay Area. It's strange for a guy who was at a time a venture partner at El Dorado Ventures, investor in early-stage companies with disruptive technology ...
Fusion-io makes some buzz when it hires well-known Apple cofounder Steve Wozniak as chief scientist in 2009.
One of the biggest beneficiaries of the acquisition will be founder David Flynn who controlled over 6% of the company, or about 6.6 million shares, his stake consequently worthing over $74 million.
The firm sold its first PCIe SSDs in April 2007, its ioDrive product families combining one or more ioMemory modules with its VSL software, to direct customer Facebook and OEMs including IBM, HP Dell (an early investor), as well as Tokyo Electron Device and Super Micro Computer.
The community didn't appreciate when the company admitted publicly being heavily reliant on only two customers: Facebook and Apple, representing about 50% of its business.
The two co-founders CEO Flynn and CMO Rick White abruptly left the company at the beginning of 2013 as well as few month later CFO Dennis Wolf and its chief sales James Dawson. Flynn was replaced by former HP chief strategy officer Shane Robison as CEO.
HP was a big customer and revealed that it would be the first company to buy the most recent Atomic series, an MLC Flash memory platform with record capacity of up to 6.4TB per PCIe SSD or more than any HDD. Orenstein refuses to reveal the price of the unit.
Fusion-io acquired in 2011 IO Turbine, provider of software using flash to solve I/O bottleneck on VMWare, for $95 million, and in 2013 NexGen Storage, in hybrid storage appliances, for $119 million.
SanDisk is the number two SSD manufacturer in the world in units shipped with a 26% market share in 4Q13 behind Samsung (32%), according to Trendfocus, and Fusion-io and LSI dominate the enterprise PCIe market.
In SSD revenue for 2013, Gartner ranked SanDisk at number three with 12% market share and Fusion-io number eight with 3%. For enterprise SSDs, SanDisk occupied the fourth position (9%) and Fusion-io the fifth one (67%).
Here is a quote from Satyam Vaghani, co-founder and CTO, PernixData: "On behalf of PernixData, I would like to congratulate our partner SanDisk on their recent acquisition of Fusion-io. The Fusion-io PCI flash technology is a perfect complement to SanDisk's existing SSD and UltraDIMM assets. The move also indicates SanDisk's willingness to have a more direct presence in the enterprise space. We will help Sandisk achieve that goal through our existing business partnership around PernixData FVP and Sandisk flash hardware to accelerate storage in virtualized datacenters."
All SSDs Released by Fusion-io
to (Go)
* MB/s
Acquisitions of SanDisk in Flash Technology
of acquired company
Information Technology
SATA and SAS SSDs
(in US $ million)
(Source: StorageNewsletter.com)