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Tech giants eye F-5 Networks acquisition

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CIOL Bureau
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CALIFORNIA: Shares of F5 Networks Inc closed 2.5 percent higher on Monday after Reuters reported that the company had received a takeover overture last year and remains a potential target for technology giants.

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According to people familiar with the discussions, possible buyers eyeing F5 Networks include International Business Machines Corp, Dell Inc, Hewlett-Packard Co, Oracle Corp, Juniper Networks Inc and Cisco Systems Inc.

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"F5 is such a strategic asset and as a big land grab (takes place) within communications right now in the data centre," said Tony Carbone, a senior analyst at RCM Capital Management.

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The Seattle, Washington-based networking company, which focuses on boosting the delivery of applications in data centres, was approached about the prospect of a takeover over a year ago, said one source. The identity of the potential buyer was not revealed.

Oracle has made recent public comments that it will become more aggressive moving into the data centre, while HP, through its recent deal announcement with 3PAR, and IBM's deal with Blade Network Technologies, is further testament to the tech behemoths' interest in the sector, Carbone said.

Although a few potential buyers have expressed interest, F5 has decided not to run an auction, said a person familiar with the matter. "They have done pretty well on their own...there are a lot of reasons for them to stay independent," added another person.

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The discussions between the first potential buyer and F5 were described as "on and off for a while," but were eventually called off over valuation issues, said the source knowledgeable about the approach of over a year ago.

A spokesman for F5 declined to comment.

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The company's stock has rapidly appreciated from about $40 a share a year ago to $105.89 at the close on Monday. It reported $780 million worth of cash and investments as of June 30 and currently has a market cap of $ 8.31 billion.

Some analysts are sceptical a merger can be done at these prices.

Over the last year, two of the largest deals in the space have included Oracle's acquisition of Sun Microsystems for $7.4 billion and Intel's $7.68 billion acquisition of McAfee this summer, said Nikos Theodosopoulos, a senior analyst at UBS.

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Although a strategic asset, the recent move in the stock and the current market cap has put F5 out of the sweet spot for an acquisition this year, according to Theodosopoulos.

The valuation of F5 might be rich, but Alex Henderson, a networking technology analyst at Miller Tabak + Co, says its 2011 estimates have plenty of room for upside.

Currently F5 is trading at around 33-times 2011 estimates, but that is a discount to peers, Riverbed Technology at 37 times and Acme Packet at 41.

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And HP's recent $2.35 billion acquisition of 3PAR was done in excess of 120-times 2011 estimates for an 18-20 percent growth company

F5 is considered one of the best assets in the networking business, said one of the sources. "Everybody would want to acquire them if they could get them for a price that makes sense," this person said.

A banker that advises a large private equity firm said F5 remains on the radar of big tech companies looking for strategic network assets.

In recent weeks, a number of sell-side analysts have increased their price targets for F5 to range from $105 to $123 per share.

"Is F5 too big to buy? I would say no way. If they can alter the equation sufficiently, it can change the dynamic in the data centre architecture division," Henderson told Reuters.

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