Blue Coat Systems has splashed out some $24 million in cash and $6 million in shares to buy Network Appliance's NetCache business. The deal brings together the number one and two players in the proxy caching market.

Once the deal completes, which is due within 90 days, Blue Coat will continue to sell and support NetCache, but will aim to move users over to its own ProxySG appliances. These can do more than their NetApp equivalents, according to Blue Coat International Marketing Vice President Nigel Hawthorn. For example, ProxySG has policy-driven Web and IM security features, plus WAN application acceleration capabilities.

In the long term, the deal frees NetApp to focus on storage and storage management, while Blue Coat expects to get 1000 new customers plus significant additional revenue. NetCache has been a declining part of NetApp's total business for some years, but it's estimated that it still turned over $65 million in its latest fiscal year, compared to Blue Coat's $141.5 million.

"NetApp has a strong cash position, with over 40% of its assets in cash and equivalents," said Josh Farina, an analyst with Technology Business Research. "Therefore, this sale is a means of NetApp divesting a part of its business that is not in line with the company's strategic growth plans rather than a way for NetApp to strengthen its financial position."

Nigel Hawthorn added that the deal will make Blue Coat much the biggest supplier of proxy caches, and could increase its annual revenue by as much as 50%. However, he admitted that figures from IDC show that proxy caching is less than 10% of the total $1.4 billion content and application acceleration market, so Blue Coat is still relatively small.

In order to get the money to go on the acquisition trail - it hopes to buy more than just NetCache - Blue Coat has sold a slice of itself to two venture capitalists for around $42 million. The VCs are Sequoia Capital and Francisco Partners - and as well as Blue Coat shares, Sequoia also gets a seat on Blue Coat's board.

Interestingly, Sequoia is also one of NetApp's investors and was instrumental in setting up the deal, according to Blue Coat CEO Brian NeSmith, so it does look rather like the venture capitalists shuffling their cards around to achieve the strongest possible hands.