A look at both sides of Cohesity’s acquisition of Veritas’ data protection division

Support from SoftBank Group Corp. Cohe City Co., Ltd. Today, the company is boldly Veritas Technologies LLCAcquired data protection business for $3 billion. One-third of the acquisition will be financed through equity and the remaining two-thirds through debt through Haveli Investments, Premji Invest and Madrona Venture Group.

Once the transaction closes, the combined organization will have $1.6 billion in revenue, $1.3 billion in annual recurring revenue, and a 27% profit margin, giving it pole position in the data protection market. After the acquisition, Cohecitas will be worth $7 billion, creating a giant company.

This is an interesting transaction as it brings together two leading companies in the $30 billion data protection industry. The industry is highly fragmented, with many legacy vendors and ripe for consolidation. There are several marketing benefits to being the No. 1 player in market share, but there are also other tangible benefits:

• Reduce customer acquisition costs. Since its launch, Cohesity has grown its market share by acquiring customers from the top two market share providers, Veritas and Dell. Cohesity accomplishes this by funding not only a superior product, but also marketing programs, channel partners, salespeople, etc., resulting in high customer acquisition costs. Cohesity owns its customers. In theory, these costs should go down after the deal closes.
• Global expansion. Currently, the majority of Cohesity’s business comes from the United States, and Veritas has a very diverse customer base around the world. When dealing with global and multinational companies, presence is important, and Cohesity has it.
• Data that powers AI.in Posted by SiliconANGLE, John Furrier noted the combination of “Cohesity’s AI-driven technology and Veritas’ scalable IP and customer base.” The key here is not artificial intelligence, but rather the size of the datasets driving the AI, as most vendors are building from the same model. Currently, Cohesity has a sizable customer base and offers large data sets for AI, but it is small compared to Dell and Veritas. The acquisition could strengthen Cohesity’s AI efforts.
• Economic benefits. Veritas is more profitable than Cohesity, giving Cohesity unprecedented levels of profitability. This can be used to accelerate research and development, expand your footprint, or do other activities you weren’t able to do before.

While there are many benefits on paper, there are also some risks to consider. First, I’m never a fan of deals where a disruptor buys a legacy company. Generally, this means growth is slowing and acquisitions are being made to strengthen the growth engine. Apple didn’t buy Blackberry or Nokia. The company continued its mission, stealing market share and simply eliminating the competitive handset business.

Cohesity, Rubrik, Commvault, Veeam, etc. have all taken share away from Veritas, and Cohesity could continue down that path. Other risks include:

• Product rationalization. Cohesity and Veritas operate in the same customer segment and there appears to be considerable overlap in their products. One question that urgently needs to be answered is how long it will take to integrate these disparate platforms. Until roadmap issues are resolved, customers may pause their decision or, in the worst case scenario, choose another vendor. This often happens when companies offering similar products come together. One interesting thing that’s overlooked is that Cohesity has Net Backup, a product built for large enterprises, but not Backup Exec, which is focused on the down market. . The latter would open up another segment in Cohesity.
• Competitors are stepping up their attack plans for Veritas. Once upon a time, Veritas was the king of backup and recovery. But that was about 20 years ago, and since then, the company has become the industry’s largest share provider and everyone is using the Veritas takeout plan. Acquisitions, especially acquisitions for integration purposes, are questionable, and competitors are likely developing plans to acquire Veritas’ customers. When I asked his Commvault for his thoughts on the deal, Sarv Saravanan, Commvault’s chief customer officer, said: “This deal between Cohesity and Veritas could cause complete disruption for customers. Platform integration challenges and redundant product portfolios could take years to resolve. With increasing frequency, we don’t have time for that. Customers need to know that if they are harmed, they can recover quickly. In today’s world, cyber resilience equals business resilience.” We expect to see the same from vendors.
• Debt management. The combined company will have sales of $1.6 billion and debt of $2 billion, according to financial reports from the deal. That’s a lot of debt given its earnings, especially in these days of high interest rates. If the deal moves quickly toward an IPO and is a huge success, it could help manage debt effectively. If a purchase causes customer concerns due to increased competitive pressures, an inability to clearly define a roadmap, or both, business may slow and debt may become unmanageable.
• Customer conversion does not occur automatically. In my “Pros” section, I listed low customer acquisition costs as an advantage. We also used the “theoretical” disclaimer because there is no guarantee that customers will actually choose Cohesity. In fact, in such transactions, when a legacy vendor merges with an innovator, the customer does not give the new company any special advantage just because it is an incumbent vendor. If a company plans to evaluate multiple vendors, it is likely to do a similar evaluation.

This deal certainly has a lot of potential, but there are also a lot of risks. At the market level, there are too many vendors in the market, so consolidation is necessary. Gartner’s Magic Quadrant for Backup and Recovery has 16 entries, but no other vendors. Cohesity CEO Sanjay Poonen (pictured) swings the bat wildly. Will it pay off? Only time will tell, but there is a lot to do from here.

Zeus Kerravala is a Principal Analyst at ZK Research, a division of Kerravala Consulting. He wrote this article on his SiliconANGLE.

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