SimpliVity Disappears in a Disappointing Sale to HPE

In 2015 SimpliVity raised $175 million in a funding round that valued the company at over $1billion. Today HPE purchased Simplivity for $650million in cash. Somewhere there must be some very unhappy investors wondering what happened to the lost $350million.

At DSA we are really wondering why SimpliVity sold so cheap. The price of the acquisition is a clue. As far as we know no-one is doubting the potential of this market, but very clearly the sale price of SimpliVity doesn’t seem to reflect that potential for growth. This being the fact we have to wonder whether SimpliVity was simply under performing, burning through cash and in need of a fast exit. It’s difficult to draw any other conclusion.

When we look at their activity in the ASEAN market, we saw a massive marketing drive about 2 years ago. It was truly impressive and was certainly successful in creating awareness and positioning them as a viable contender to Nutanix. However, in our opinion, their approach to the market in the field made their life difficult. Unlike Nutanix who embrace partnership, SimpliVity’s approach was much more about how they can do everything themselves. The net effect here is for SimpliVity more than other hyperconverged vendors their proposition meant dropping all existing infrastructure and making a total change.  

Other hyperconverged players seemed more willing to open up and co-exist. Having spoken off the record to a few ex SimpliVity employees, they acknowledged that whilst the product was great, the sales approach was very difficult. We are guessing but we suspect that ultimately SimpliVity could not deliver the sales required to grow the business.

SimpliVity sitting in the HPE portfolio makes sense, the technology is sound and HPE selling hyper-converged as part of a rounded total offering also makes a lot of sense. Partners seem unphased about the transition. We spoke to Avnet in Malaysia, already an HPE partner who had been in dialogue with Simplivity about taking on distribution. Other than being slightly in the dark about whether this announcement puts those discussions back, they still seemed keen to have access to the Simplivity product set.  On balance this looks good for HPE but is a stark warning that trying to take on the infrastructure vendors even with disruptive technology is always going to be a difficult battle. No doubt everyone will be looking very closely at how Nutanix fare over the next twelve months, perhaps none more so than Dell?
 
Full press release follows;
 
HPE to Acquire SimpliVity and Expand Leadership in Growing Hybrid IT Industry

Hewlett Packard Enterprise announced a definitive agreement to acquire SimpliVity for $650 million in cash.  The hyperconverged market was estimated to be approximately $2.4 billion in 2016, and is expected to grow at a compound annual growth rate of 25 percent, to nearly $6 billion, by 2020.  By bringing together HPE’s best-in-class infrastructure, automation and cloud management software with SimpliVity’s industry leading software-defined data management platform, HPE and its partner ecosystem will deliver the industry’s only “built-for-enterprise” hyperconverged offering.    

“This transaction expands HPE’s software-defined capability and fits squarely within our strategy to make Hybrid IT simple for customers,” said Meg Whitman, President and CEO, Hewlett Packard Enterprise.  “More and more customers are looking for solutions that bring them secure, highly resilient, on-premises infrastructure at cloud economics.  That’s exactly where we’re focused.”
 
SimpliVity: A Leader in Hyperconverged Infrastructure

Many enterprises have legacy IT environments that are not well suited for today’s cloud-based services and on-demand applications.  Modern data management platforms need simple, user-friendly interfaces that give developers the tools they need to easily develop, scale and protect data.  A hyperconverged system integrates compute, storage and networking into a pre-configured system, managed by a user-friendly software platform that doesn’t require extensive IT staff for set up and management.

SimpliVity, which is privately held, was founded in 2009 and is headquartered in Westborough, MA. The company’s software-defined, hyperconverged infrastructure is designed from the ground up to meet the needs of enterprise customers who require on-premises technology infrastructure with enterprise-class performance, data protection, and resiliency, at cloud economics.  

The combined HPE and SimpliVity portfolio will offer a rich set of enterprise data services across hyperconverged, 3PAR storage, composable infrastructure and multi-cloud offerings..
Adding SimpliVity’s innovative technology to HPE’s hyperconverged portfolio provides significant additional benefits to customers, including:
 
· Built-in enterprise data protection and resiliency that simplifies backup and enables customers to more quickly restore operations.    
· Enterprise storage utilization and virtual machine (VM) efficiency that helps customers control cost and performance. 
· Always-on compression and de-duplication that guarantees 90 percent capacity savings across storage and backup.  
· Policy-based VM-centric management that simplifies operations and enables data mobility, making development teams and end-users more productive.
 
“Over the past 8 years we’ve been on an incredible journey and joining HPE is the logical next step for SimpliVity,” said Doron Kempel, Chairman and CEO, SimpliVity.  “HPE’s broad sales reach, extensive partner channel, complementary technology and commitment to innovation will accelerate SimpliVity’s journey and significantly strengthen our ability to deliver the best-in-class hybrid IT solutions our customers are looking for.”
 
A Strong Combined Roadmap

Software-defined infrastructure is at the heart of HPE’s Hybrid IT strategy and this move accelerates the company’s ability to deliver a modern, multi-cloud, multi-IaaS platform, powered by automation software and composable infrastructure. 

For current HPE customers and partners, the company will continue to offer its existing hyperconverged products, the HC 380 and the HC 250.  For SimpliVity customers and partners, there will be no immediate change in the product roadmap and HPE will continue to support existing SimpliVity customers and platforms. 

Within 60 days of closing the transaction, HPE intends to offer the SimpliVity Omni Stack software qualified for its ProLiant DL380 servers. In the second half of 2017, the company will offer a range of integrated HPE SimpliVity hyperconverged systems based on HPE ProLiant Servers.  

Looking forward, HPE customers can expect to see their hyperconverged experience continue to improve with new innovations like “workspace” controls, which provide business leaders and developers with simple self-service portals to compose virtualized and containerized resources, and accelerate application development and deployment.   Additionally, HPE will provide enhanced business insight, including predictive analytics, which will give IT managers the tools they need to increase resource utilization and proactively respond to needs for new resources.
 
Impact to Financial Performance

HPE and SimpliVity believe that by bringing together their complementary product portfolios and leveraging HPE’s expansive go-to-market capability, partner ecosystem, and consumption model offerings, they will be able to significantly accelerate the financial performance of the combined business. 

HPE expects the acquisition to be accretive to earnings in the first full fiscal year following close. 

The transaction is expected to close in the second quarter of HPE’s fiscal year 2017, subject to regulatory review and approval, as well as other customary closing conditions and adjustments.

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