Dollars & Deals

Once Sun Microsystems rejected a rumored-but-never-confirmed takeover bid by IBM and Yahoo failed to get Microsoft back to the bargaining table, we saw something that we haven't seen in seven years -- no billion-dollar tech mergers or acquisitions took place in the first quarter of the year.

The Wall Street Journal, citing research from the 451 Group, reported that there were 625 global tech mergers and acquisitions in the first quarter worth a total of $8 billion. That's a big drop-off from last year, when there were 835 deals with a value of $55.2 billion. We are on pace this year to see about $32 billion in tech M&A deals, a little more than half of the $61 billion recorded in 2003, which was the worst year in recent memory.

Many of the reasons are obvious -- the recession, the decline in the stock market, a reduction in IT spending, an aversion to risk, and so on. Yet, many of the larger tech companies have a ton of cash sitting on their books, and some have been making strategic acquisitions to fill out their product portfolios or to enter new markets. So the market isn't entirely dead. For example, we've seen server and storage vendor Rackable Systems agree to buy struggling Silicon Graphics for a laughable $25 million. If you can buy a former iconic tech company for pennies, it is no surprise that there haven't been billion-dollar deals.

There haven't been any big or even mid-sized deals in storage recently, even though there are probably some vendors that would be happy to cash out for a decent price. The good news for the storage vendors is that despite the credit crisis and the frozen financial markets, some vendors have been able to raise cash. We've had two examples in the past week or so.

Sepaton, which makes virtual tape libraries and data de-duplication systems, raised a sixth round of financing that was worth $15.5 million. A new investor, Focus Ventures led the round, as current investors Jerusalem Venture Partners, Menlo Ventures, Valhalla Partners, and HarbourVest Partners kicked in more money. The company, formerly known as SANgate, raised more than $20 million in 2004 and again in 2007."Today's challenging economic environment makes deciding which companies to invest in more difficult than ever," Kevin McQuillan, general partner and co-founder at Focus Ventures, said in a statement. "We've been closely watching the growth of enterprise-ready data protection, and Sepaton is well positioned as the market leader."

The big bucks were raised by Fusion-io, a hot company in a hot market -- solid-state disks. It filled its pockets with $47.5 million in a second round of financing from a group led by venture capital firm Lightspeed Venture Partners. It has recently announced partnership deals with Dell, HP, and IBM. Fusion-io also reported that David Bradford, a former executive at Novell, will take over as CEO.

The company says it will use the cash to "build on its industry-leading server-attached storage products to supply server-deployed, network-attached solid-state storage. The first of these products, releasing this summer, is the ioSAN. The ioSAN is a PCI Express-based product that extends the raw power of Fusion-io's solid-state technology across the network."

The main point is that while the deal-making market may be moribund, there is money available if you have a good product in a healthy and growing market. Despite recent reports that spending on storage is slipping, storage still remains one of the healthier tech markets. And it will probably remains that way for quite a while.

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