Imation Buys Nexsan For $120M To Beef Up Its SME Enterprise Storage Business

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Some consolidation in the world of enterprise storage to kick off the new year: the storage and data security giant Imation Corp. has acquired Nexsan Corporation, a specialist in disk-based storage systems, for $120 million, with $105 million of that in cash and the remainder in publicly-traded Imation shares, according to a statement from the companies.

The move appears to be a part of Imation’s efforts to rebuild its business around more high-growth areas, as it comes off a particularly bad quarter of declining revenues in all of its existing lines of business.

Like many other startups in the enterprise space, Nexsan was a success story that somewhat flew under the radar. Nexsan competes against companies like EMC and HP selling storage specifically to companies in the small- and medium-business sector. It appears to have only raised $7.5 million in funding since being founded in 2000. In 2011, it had revenues of $82 million with margins of over 40% on its products.

For Imation, which offers storage solutions both to enterprises and consumers, the deal will add 11,000 customers to its books, and give it a boost in its business targeting the SMB segment — a sector that has followed in the footsteps of larger enterprises by increasingly needing remote storage alternatives for their data, a key area to target as business growth among larger enterprises slows down and faces more competition from larger players (like HP and EMC). As Mark Lucas, the president and CEO of Imation, puts it, Imation is “targeting markets with strong growth rates.”:

“Our strategy includes focusing on the underserved SMB market with purpose-built storage systems and appliances,” he noted in a statement. “This is a market that Nexsan knows well.”

Investing in healthily-growing areas is an imperative at the moment for Imation: the company in Q3, at the end of October, reported that its revenues were $248.2 million, down 19.6% from Q3 2011, on the back of missing revenue expectations in “almost all lines of business” and all regions, but with specific problems in the company’s traditional media storage business — which will have been disrupted massively by the big rise in lower-cost cloud-storage services.

Imation also posted an adjusted operating loss of $6.5 million: that included a benefit in restructuring and other charges of $3.6 million, and a diluted loss per share of $0.17. Excluding those charges the loss would have been $10.1 million.

One recent appearance of Nexsan in the news was in September, when it was named, along with Rackspace and others, in a patent lawsuit filed by PersonalWeb and Level 3 over Github hosting. We are reaching out to the company to find out the latest developments in that case. Update: Imation “will not have any liability with respect to the case you reference,” an Imation spokesperson writes in an email, but she would not comment further on whether the case has been settled or dismissed.

Nexsan, which is based in Thousand Oaks, California, employs about 200 people across the U.S., UK and Canada. These employees, led by CEO Philip Black, will all be joining Imation, the company says.

Imation Acquires Nexsan Corporation

Acquisition Further Strengthens Imation’s Tiered Storage and Security Solutions Growth Platform, Accelerates Strategic Transformation

OAKDALE, Minn.–(BUSINESS WIRE)–Imation Corp. (NYSE: IMN), a global scalable storage and data security company, has reached an important milestone in its strategic transformation. Imation today announced that it has acquired privately held Nexsan® Corporation, a Thousand Oaks, Calif.-based provider of disk-based storage systems. As the Company continues to execute its strategy, Imation is leveraging its deep data storage core, building a platform for long-term growth and improving operating margins in high-growth data storage and security solutions markets.

“We are excited to have Nexsan become part of Imation”
The acquisition of Nexsan brings to Imation a proven technology platform and a robust portfolio of disk-based and hybrid disk-and-solid-state storage systems with more than 11,000 existing customers worldwide. It is expected to significantly accelerate Imation’s growth in the small and medium-sized business (SMB) and distributed enterprise (SME) storage markets. Imation will provide the Nexsan business with global scale and a well-known storage brand for global expansion. With SMBs and SMEs struggling to address their rapidly increasing data storage and management needs, the combined Imation and Nexsan portfolio will offer customers an attractive, price / performance alternative to competitive offerings.

The combination cash-and-stock transaction included approximately $105 million in cash and 3,319,324 Imation common shares, the equivalent of approximately $15 million.

“Imation’s acquisition of Nexsan is an exciting next step in our strategic transformation, which includes investing in growth platforms in data storage and security solutions, where we are targeting markets with strong growth rates,” said Mark Lucas, president and CEO of Imation. “Our strategy includes focusing on the underserved SMB market with purpose-built storage systems and appliances. This is a market that Nexsan knows well. Nexsan’s management team has grown this business from start-up to more than $80 million, with strong gross margins. Nexsan is a successful company that is addressing some of today’s fastest growing trends in storage, and we are pleased that its management team, including CEO Philip Black, will join Imation. The combination of Nexsan’s products, technologies, and talented teams with Imation’s global reach and infrastructure will be an excellent accelerator for our growth strategy in storage solutions,” concluded Lucas.

“We are excited to have Nexsan become part of Imation,” said Philip Black, CEO of Nexsan. “Imation provides us the scale and global footprint to expand our business, while still keeping intact our award winning partner program, our strong management team and employees, and our innovative products and roadmap. We look forward to working as part of Imation to deliver compelling solutions that meet the growing storage, archive and compliance requirements of businesses worldwide. This is good news for Nexsan channel partners, employees and customers.”

Nexsan’s 2011 revenues were $82 million and are continuing to grow, with gross margins in the 40 percent range. This acquisition is expected to be immediately accretive to Imation’s EBITDA.

Approximately 200 employees, based in the U.S., U.K. and Canada, have joined Imation with this acquisition. The Nexsan business will continue to operate within Imation from Nexsan’s current headquarters in Thousand Oaks, Calif., under existing management. Integration and global expansion activities between Imation’s Tiered Storage and Security Solutions business and Nexsan will be determined in first quarter 2013.

Imation Schedules Fourth Quarter 2012 Financial Results Conference Call

Imation also announced that it is scheduled to release the Company’s fourth quarter 2012 financial results on Wednesday, February 13, 2013 at 6:00 a.m. Central time. A teleconference for the financial community and a live webcast are scheduled from 9:00 to 10:00 a.m. Central time.

The live webcast of the teleconference will be available on the Internet at http://www.imation.com or http://www.streetevents.com. A replay of this webcast will be available at either of these websites through Friday, February 22, 2013. A taped replay of the teleconference will also be available beginning at 11:00 a.m. Central time, February 13, 2013 until 11:00 p.m. Central time February 22, 2013 by dialing (855) 859-2056 or (404) 537-3406 (Conference ID #64544023).

All remarks made during the teleconference will be current at the time of the call and the replay will not be updated to reflect any subsequent developments.

About Imation Corp.

Imation (NYSE: IMN) is a global scalable storage and data security company. The Company’s portfolio includes tiered storage and security offerings for business and products designed to manage audio and video information in the home. Imation reaches customers in more than 100 countries through a powerful global distribution network and well recognized brands. Additional information about Imation is available at http://www.imation.com.

About Nexsan

Nexsan® is a leading provider of data storage systems with more than 33,000 systems installed at 11,000 customers worldwide. Nexsan’s pioneering Hybrid Storage systems combine solid-state technologies, disk storage and advanced software to deliver radically new levels of performance and capacity at lower cost. The company’s advanced technologies enable organizations to optimize traditional, virtual and cloud computing environments for increased productivity and business agility. The company delivers its data storage systems through a worldwide network of cloud service providers, value-added resellers and solution integrators. Nexsan is based in Thousand Oaks, Calif. For more information, visit http://www.nexsan.com.