Underlining the importance of message archiving software, Veritas Software Corp. has announced plans for a $224 million cash acquisition of KVS Software Ltd., the highest profile player in the sector.
Veritas is paying a high price for the privately held British company, which although fast-growing saw just $23 million revenue last year, making a ten-fold price-to-revenue ratio. But the storage software giant will plug an important gap in its portfolio with software from the clear leader in the sector. Veritas expects the deal to be accretive within 12 to 18 months.
KVS’ revenue rose by 53% in 2003, about twice as fast as EMC Corp.’s sales of products in the same sector, according to Gartner and Merrill Lynch estimates. Its share of total worldwide email archiving revenue last year was 37%, way ahead of second-placed iLumin that took 17%, or EM that took 12%.
Veritas’ only current offering for email and other message archiving software is its DLM 6.0 product, a suite of tools it assembled from existing software and shipped early this year.
Widely judged as competitively weak in terms of archiving functions, DLM will be dropped this month in favor of KVS’ Enterprise Vault product that is focused on use to alongside Exchange and other Microsoft software.
The KVS software will be integrated with Veritas’ backup software, file system and volume management tools. It bridges backup and storage management – our two key areas, said Veritas CEO Gary Bloom.
Gartner predicts that the email archiving market will show 57% CAGR until 2007. All the big players have been looking at this area, said Dennis Martin, analyst at the Evaluator Group.
Demand in the sector is soaring because of ballooning email volumes, tightening data retention regulations, and customers’ needs to prepare for what can be expensive court-ordered data searches. Message archiving software traps and organizes emails, instant messages and other data in rapidly searchable archives.
KVS and Veritas have been an obvious match. Veritas’ arch-rival EMC entered the market last year when it bought Legato. IBM Corp has been more interested in developing its own message archiving software in-house, as has to a lesser extent Hewlett-Packard Co., Martin said.
It would be unfair to describe Veritas’ purchase as a reaction to EMC’s aquisition of Legato, Martin said. They just both concluded the same thing – that they needed software in this area, he said. And if Veritas is perceived as being disadvantaged because it is coming to market slightly later than EMC, it now has the advantage of owning the strongest player in the market.
EMC will be able to hit back at Veritas – if it chooses to pay the price of compromised hardware sales. KVS CEO Mike Hedger estimated that 20% to 25% of his company’s software is sold for use on EMC’s Centera disk array, a proportion that might fall if EMC decides to cold-shoulder KVS.
But Hedges said: Why would they try to stop us? We’re the number one software application on the Centera, and the customers choose the software before they choose the hardware platform that goes underneath it.
When Veritas bought applications management software supplier Precise Software last year, it stumbled with the post-acquisition organization of sales teams and hobbled sales growth.
KVS and its 200 staff will initially be operated as a distinct entity within Veritas, under the control of Hedger. You go through these things, and your learn. We won’t be making the same mistakes again, said Jeremy Burton, chief marketing officer at Veritas and the board executive charged with overseeing the merger of KVS and Veritas.