Dell to Pay $1.4B for EqualLogic

Dell announced plans to acquire iSCSI SAN specialist EqualLogic for a massive $1.4 billion in cash this morning, in the year's second-largest storage-related acquisition so far.

The move comes just a few months after EqualLogic filed the paperwork for an IPO expected to raise $125 million, and underlines the growing momentum behind iSCSI.

Dell recently unveiled its own iSCSI SAN in an attempt to tap into the SMB storage market, and the vendor is keen to strengthen its portfolio against rival vendors such as IBM and HP.

"Storage is the fastest growing part of Dell's portfolio, and we want to extend that," said Mike Arterbury, Dell's director of storage operations, outlining the vendor's plan's for EqualLogic's iSCSI-based SAN systems.

"We're going to run two plays here," he explained. "One is to extend the EqualLogic line and the other is to integrate that into our PowerVault product line."Specifically, Dell is planning to build EqualLogic's technology into its 1000, 3000, and 3000i PowerVault disk arrays. Arterbury would not go into specific details about this integration plan, but he confirmed that EqualLogic's PS Series hardware could form the basis of a new high-end PowerVault device.

It appears the bulk of EqualLogic's 384-strong workforce will be moving over to Dell. "Our intent is to keep as many of them as possible," said Arterbury, although the exec could not confirm whether the EqualLogic CEO Don Bulens and his management team will be joining Dell. "We're working through the details of that right now," he added.

In a note released earlier today, analyst firm Goldman Sachs described the EqualLogic deal as a shrewd move to "jumpstart" Dell's storage business.

"EqualLogic is the standalone leader in the iSCSI space, selling its storage to a wide range of small and medium-sized businesses," wrote analyst Laura Conigliaro, adding that this will enable to Dell "to get off the ground running."

In another note released earlier today, analyst firm Caris was less optimistic, citing the possibility that Dell overpaid for the acquisition. "We are neutral on this deal," wrote analyst Shebly Seyrafi, explaining that EqualLogic's high growth rate and the strong synergy with Dell's existing business are balanced by concerns over the purchase price.In addition to an estimated dilution of Dell's EPS of between 2 percent and 3 percent, Seyrafi explained that, at $1.4 billion, the vendor is paying around six times EqualLogic's annual revenues.

Whether Dell overpaid or not, iSCSI is increasingly being touted as an alternative to Fibre Channel. Vendors are pushing iSCSI as a way for users to reap the benefits of emerging technologies such as 10-Gbit/s Ethernet.

EqualLogic is not the only vendor playing in this space, and other proponents of the technology include LeftHand Networks, QLogic, DataCore, and H3C.

"We looked at a broad array of products and companies in terms of how best to extend our strategy, and EqualLogic was the best solution and best package to meet our strategic goals," said Arterbury.

Dell is also getting its hands on EqualLogic's sizable customer base thanks to today's deal. The Nashua, N.H.-based vendor has more than 2,500 customers, according to its IPO filing. These include British veterans' organization the Royal British Legion, Babson College, and mobile technology specialist Intermec.The EqualLogic acquisition is expected to close sometime between January and April of next year.

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