# Extreme Networks acquires Enterasys for some long-overdue industry consolidation

## With a $180 million price tag, Extreme Networks notched a win with its acquisition of Enterasys Networks. By Zeus Kerravala on Thu, 09/12/13 - 9:51am. This morning, Extreme Networks announced it has entered into an agreement to acquire Enterasys Networks for$180 million in cash. Extreme is funding the purchase by pulling $105 million from its$205 million of cash on hand and then borrowing $75 million from a new credit line established. Extreme will buy Enterasys from the Gore Group, which acquired the company back in 2006 for$386 million. Around the same time, Gore had acquired Siemens Enterprise with the idea of creating an organization that could deliver an "end-to-end" UC-data solution.

The concept was sound, but in practicality, the UC solutions from Siemens Enterprise are widely deployed on Cisco networks. Considering the challenges Siemens Enterprise has encountered while rebuilding its portfolio over the past five years or so, creating any kind of resistance in its customer base is the last thing the company needed. So, instead of pushing a combined Siemens Enterprise/Enterasys solution, the sales force gave customers what they wanted, which was Cisco most of the time.

Like I said, the combined solution was the right idea, but the dynamics of where the two companies were with their portfolios and the ability to execute on a Cisco-like systems approach held the combined entity back. Siemens Enterprise is now going through another transformation as it plans to rebrand itself come October. I had some questions as to whether Enterasys would be part of the "new Siemens" or not. The answer is obvious now, as Extreme will take ownership of Enterasys.

The sale of Enterasys marks the official end of Cabletron Systems, the once great and mighty networking vendor. Prior to working as an analyst, I held many positions in corporate IT, and had deployed a fair bit of Cabletron networking gear, as well as Cisco and 3Com. At its peak, Cabletron had well over 6,000 employees and had revenues north of $1 billion. In 2000, Cabletron reorganized itself into a holding company and split the company into four firms: Riverstone Networks, Aprisma Management Technologies, Global Network Technology Services (GTNS) and Enterasys. Riverstone was acquired by Lucent, Aprisma by Computer Associates, GTNS shut down, and Enterasys remained the lone remnant of the Cabletron name. For Extreme, the deal makes all the sense in the world. First, for a price of$180 million, I’m not sure why someone else didn’t swoop in and buy Enterasys. The company does somewhere in the range of $300 million per year, so the purchase price doesn’t even equal its annual revenue. Secondly, networking share is very difficult to gain. Once you’ve established an install base, maintaining that base requires work, but is doable even for the smallest vendors, which is why there are so many network vendors today. The acquisition effectively doubles the size of Extreme, as it did close to the same revenue as Enterasys, and doubling its sales organically would have likely cost more than$180 million. The deal is also accretive to corporate margins, so it should be appealing to Extreme shareholders.

Looking across the enterprise networking landscape, there are way too many vendors, especially given Cisco’s dominant position. In addition to Cisco, the following vendors also sell enterprise network infrastructure: Alcatel-Lucent, Brocade, Juniper, HP, Avaya, Dell, Aruba, Xirrus, Arista, Aerohive, Meru, Ruckus, Ubiquity, Netgear and Motorola, and I’ve probably missed a couple. There are simply too many vendors for whatever share remains after Cisco and HP take their chunks, so consolidation is sorely needed. I really thought Dell might acquire either one or both of Extreme or Enterasys, but I think Dell is still trying to find its networking identity after the Force10 acquisition.

The acquisition doubles Extreme's share in a customer base with almost no overlap. In fact, I’m not sure I know of any joint Enterasys/Extreme customers, so it’s not likely to cause much churn if managed properly. Enterasys has long been known as a vendor with great security products, whereas Extreme had none, so that product line becomes available to its customer base. Also, Enterasys has recently had a fair amount of success with its wireless portfolio and had won both Lincoln Field, home of the Philadelphia Eagles, and Gillette Stadium, home of the New England Patriots – both very demanding environments. Extreme had relied on an OEM agreement with Motorola for its wireless solution. While Motorola has a good wireless solution, an OEM agreement, particularly in a fast-moving market like Wi-Fi, isn’t ideal.

There’s obvious overlap with the campus and data center networking technologies, but both companies do have good software discipline and modular operating systems, so bringing these two product lines shouldn’t be a monumental task. I’m not saying it will be easy - merging products together never is - but the nature of the way both companies built their products should make it an achievable task.

Enterasys gets an owner who cares about networking. Extreme gets some share, some missing products to add to its networking line, and a new customer base to sell into. "Extremasys" gives the industry some long overdue consolidation, although I suspect there’s likely more to come.

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