Adaptec to Buy Eurologic?

Adaptec Inc. (Nasdaq: ADPT) is in talks to acquire storage subsystem manufacturer Eurologic Systems in a move to beef up its SAN storage offerings, sources tell Byte and Switch.

Adaptec executives this week are visiting Eurologic's U.S. offices in Boxborough, Mass., to interview the remaining employees there about whether they'll be joining Adaptec, according a source who requested anonymity. Eurologic, based in Dublin, Ireland, sells network storage hardware and software through systems OEMs and other indirect channels.

Sources put the price tag of the potential deal at around $50 million. Adaptec certainly has the money in the bank to make an acquisition of this size: As of Dec. 31, 2002, it had about $380 million cash on hand.

"I think it's a done deal," says the source. "If they haven't actually signed papers, it's far enough down the road that there are people who know whether they're going to be kept or whether they're going to be let go." One of the provisions of the deal, says this source, is that Adaptec would agree to not lay off anyone at Eurologic's Clonshaugh facility in Dublin for at least six months.

Adaptec and Eurologic representatives declined to comment for this story.Paul Mansky, principal at research firm ThinkEquity Partners, says that Adaptec's acquisition of Eurologic would be a "natural augmentation" of its DuraStor external RAID storage line.

While Adaptec's storage systems business is "still pretty embryonic as it relates to total P&L [profit and loss]," Mansky says, "there could be some interesting possibilities with Eurologic."

Specifically, Adaptec, one of the leading suppliers of SCSI host adapters, may be looking to use Eurologic as a way to bolster its IP SAN offerings. It's worth noting that the two companies have teamed up recently for beta testing of their respective iSCSI-based products. With Eurologic, Adaptec would be able to offer its OEM partners an integrated host-to-storage IP SAN bundle (see Adaptec Details IP SAN Betas).

But both firms have been badly bruised over the past year. Adaptec last month laid off about 165 staffers, or 11 percent of its workforce, as it tries to reduce operating expenses. Eurologic has been on a downward revenue spiral for about a year, and last fall it instituted a "voluntary severance" program to cut its workforce by 20 percent, from 235 to 190 employees (see Adaptec Axes Headcount, Again and Eurologic Pares Headcount).

In another sign that Adaptec is planning to expand its networked storage offerings, it bought the assets of bankrupt NAS vendor Tricord Systems in November 2002. But it hasn't yet explained exactly what it's planning to do with this technology (see Adaptec Scrapes Up Tricord and Adaptec Acquires Tricord Assets).Adaptec watched with frustration through 2002 as the market for iSCSI systems -- which extend SCSI storage commands over TCP/IP networks -- continued to be delayed. Its iSCSI adapter is based on technology from Platys Communications, which it bought in July 2001 (see Adaptec Pockets Platys).

IP SANs now have renewed momentum, as the iSCSI specification has been ratified and major players such as Microsoft Corp. (Nasdaq: MSFT) and Network Appliance Inc. (Nasdaq: NTAP) have moved quickly to support it (see Microsoft to Unleash iSCSI, NetApp's IP SAN Wins a Fan, and NetApp Blitzes on iSCSI).

Is the timing right for Adaptec to pick up Eurologic? First we'll have to see whether this trans-Atlantic union actually happens.

Todd Spangler, US Editor, Byte and Switch