EMC to acquire data storage rival for $2.4bn

EMC, the largest data-storage company by revenue, is to buy Isilon, its much smaller rival, for $2.4bn in cash, giving a further boost to an already lively market for technology mergers as companies seek to broaden their product portfolios.

The purchase price of $33.85 a share in cash, announced on Monday, represents a 29 per cent premium to Isilon’s closing price on Friday. The stock surged 28 per cent on Monday, after having already doubled in value this year.

The Seattle-based company has made a loss every year since it was founded in 2001, turning in revenue of just $123m in the 2009 financial year. EMC said the deal would cement its position as the leader in the increasingly important data storage sector, as customers shift to cloud computing – the use of technology to access remote computing power and data over the internet.

“Together Isilon and Atmos [a similar offering from EMC] represent [a] great one-two punch,” Joe Tucci, chief executive, told investors on a conference call. EMC shares slipped less than 1 per cent in late trade.

Other storage companies surged as investors bet that consolidation in the sector would accelerate. Anticipated demand for high-end storage is leading the acquisition frenzy. EMC, which has made some smaller storage deals, needs to stay active because deeper-pocketed and more generalised technology rivals are also spending heavily in the sector. Hewlett-Packard, the leading technology company by revenue, in September beat rival Dell in an intense bidding war for 3Par, the data storage company, agreeing to pay $2.4bn.

IBM later that month bought Netezza , which makes storage appliances and analytics, for $1.7bn. Oracle and Cisco are all vying to become one-stop shops for cloud computing.

Storage and analysis tools are vital as businesses shift toward the cloud. Mr Tucci said the amount of electronic data being amassed is more than doubling every 18 months and could increase more than 40-fold in the next decade.

Companies therefore need cost-effective access to remote data and tools to process it. But the prices being paid raise the stakes for the new competition.

Isilon has just 500 employees. It offers network-attached storage that can be built out rapidly as the need arises. Its 1,200 customers include Sony and Eastman Kodak.

Mark Moskowitz, analyst at JPMorgan, said the deal was modest in impact but “a good strategic move” despite the expense, in that it keeps Isilon’s still-emerging technology out of the hands of other companies.

EMC’s most valuable asset is its majority stake in VMware, a leading virtualisation software company that allows technology buyers to leverage their hardware assets by running simultaneous tasks on the same computer servers.