No Brainer: Veritas Buys KVS

Veritas Software Corp. (Nasdaq: VRTS) has announced today that it will pay $225 million to fill in a hole in its product line by picking up private U.K.-based email archiver KVS Inc (see Veritas Buys KVS).

The move continues two trends over the past 14 months: Veritas has consistently opened its checkbook to enhance its product line, and email archiving companies have been frequent targets in mergers and acquisitions (see Veritas Buys More Utility Power and Spam Blocker Chomps Email Archiver). Veritas expects the deal to close by the end of September.

Veritas CEO Gary Bloom says his company identified privately held KVS as the market leader in email archiving, pointing to its $23 million in revenue in 2003. He also pointed to rapid growth in that market, due to companies needing to retain email to comply with federal regulations. Analysts say KVS is on pace to record 2004 income as high as $45 million to $50 million. KVS claims more than 900 customers and 1.7 million seats worldwide and is entrenched in the Microsoft Exchange environment. Exchange is by far the most installed email program.

Veritas will run KVS as a business unit, and Bloom says its 200 employees will be retained in the U.K. under current CEO Mike Hedger. Enterprise Vault, KVSs flagship product, will be rebranded as Veritas Enterprise Vault beginning next year. Enterprise Vault will replace Veritas' Data Lifecycle Manager archiving product, and will eventually become part of Veritas' data protection suite.

It’s been no secret that Veritas has had problems with Data Lifecycle Manager (see Veritas Manages Data Lifecycles). The product was late and lacks the features of KVS and EMC Corp.'s (NYSE: EMC) Legato archiving software. Last month, an analyst told Byte and Switch , “If Veritas has half a brain, they’ll buy KVS right now.” (See Another Reason to Hate Compliance.)That analyst, Kaushik Roy of Susquehanna Financial Group, today called the deal “a definite positive for Veritas.

"I’m amazed it took them so long to figure this out,” he says. “They just plugged a big hole in their product portfolio and struck a competitive blow to EMC.”

Hedger says he believes KVS is the top-selling email archive product on EMC’s Centera, which is its major compliance hardware platform. Hedger estimates that 20 percent to 25 percent of KVS revenues come from Centera sales.

Unlike Veritas’s recent acquisitions of Precise, Ejasent, and Invio that beefed up its utility computing software, this one plays more in the traditional storage space (see Veritas Stretches Beyond Storage, Veritas Buys More Utility Power, Veritas Nabs Ejasent, Veritas Moves up the Stack, and Veritas Picks Up Precise).

“This acquisition is right in the heart of our core business,” CEO Bloom says. “It bridges storage and backup.”KVS raised $37 million in funding since its 1999 inception and was pointed to as a candidate to go public earlier this year when it looked as if the IPO market would open up (see Window of Opportunity and KVS Puts New Combo on Vault). Analysts say KVS wasn’t profitable last year but might have been this year with its revenue expected to double. Bloom says he expects the acquisition will prove accretive to Veritas’s earnings within 12 to 18 months.

— Dave Raffo, Senior Editor, Byte and Switch