This syndicated post originally appeared at Zeus Kerravala's blog.
On Monday, October 29th (Hurricane Sandy day!), Riverbed announced its intention to purchase one of the APM market leaders, Opnet, for a shade under a billion dollars ($43/share), which represents about a 30% premium over OPNET’s current market cap. To finance the deal, Riverbed will use some debt being financed by Morgan Stanley and Goldman Sachs. OPNET will do a shade under $200 million this year, which, when combined with Riverbed’s expected $834, will push Riverbed over the billion-dollar revenue mark for the first time in its history.
This should be a great acquisition for Riverbed as the Opnet products will nicely complement the products in the company’s Cascade business unit. Riverbed jumped into the network management market after it acquired Mazu Networks in 2009 and CACE Technologies in 2010. The two combined gave Riverbed both a macro-level view (Mazu) of the network with the ability to drill down with micro-level analysis (CACE). However, as strong as the product was, its sweet spot was mid-market and below.
Opnet, on the other hand, is a network manager’s tool for the hardcore network guy. It has a steep learning curve; it’s not the easiest tool to use but it has great analytic capabilities. In addition, Opnet has been shifting its focus from being a network-only tool to one that has strong application-level analysis through the growth of its App Xpert suite. App Xpert has application-level sensors that can provide real application-level monitoring, instead of just inferred monitoring through network flows. The Cascade/Opnet combination should allow Riverbed to jump into the red-hot application performance monitoring (APM) market with both feet.
If you’ve read my blogs in the past you’ll know that I believe there is a significant sea change coming in the network management market. The more things become virtual, mobile, and “software defined,” the less useful the legacy management frameworks are. The legacy management tools were meant for a different era of IT where physical resources, tight IT control and silos of infrastructure were the norm. Today, of course, the model has flipped. Things that were once the exception have become the norm and the management tools haven’t followed. This creates the market transition that Riverbed should be able to exploit.
The other interesting thing about this acquisition is the opportunity presented with Riverbed’s channel. Opnet has historically been a direct sales company. One of the reasons is that the product is relatively complicated and appeals to the sophisticated buyer. Those types of buyers would rather buy products directly, rather than through a channel partner. As IT continues to evolve, the need for APM broadens and channel becomes more important. Riverbed has spent the past five years or so building and managing a channel. The two combined have the potential to create a real 1+1=3 opportunity.
I’m a big believer that market share gains come during points of market transition, and it seems IT is in the midst of many transitions. While Riverbed paid a decent premium for Opnet, it was exorbitant and should be something Riverbed can ride as the APM wave continues to roll on.
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