HP Enterprise’s $374m Acquisition of Zerto

By Athean Myat, Suchritha Patlolla, Josh Figueoroa, and Chris Goranov (Cornell University)

 

Overview of the deal


Acquirer: Hewlett Packard Enterprise

Target: Zerto

Implied Equity Value: $374M

Expected Closed Date: September 2021


Hewlett Packard Enterprise (NYSE: HPE) announced that it plans to acquire Zerto, a data protection company, for $374 million all-cash by this year’s 4th quarter. This deal values Zerto over two times the initial funding of $183 million the company once raised by the company. With HPE’s cloud data services and market exposure, Zerto’s cloud data management and digital protection system will provide customers with an extraordinary experience. Additionally, as the data protection market is projected to grow at a compound annual rate of 19%, this acquisition will contribute to HPE’s top-line growth due to Zerto’s ability to protect data across multiple virtual machines efficiently and effectively. Coupled with Biden’s new executive order of new software standards, HPE’s acquisition is projected to increase the company’s software gross margins by more than $130 million.


"[The Industry] face[s] significant issues managing data complexity across hybrid and multi-cloud environments. Zerto further positions HPE to help solve these customer challenges and become the leader in data management and protection through HPE GreenLake cloud services." - Tom Black, Senior Vice President and General Manager (HPE Storage)


Company Details: (Acquirer - Hewlett Packard Enterprise)


Hewlett Packard Enterprise (NYSE: HPE) is a global-edge to cloud company that helps organizations accelerate their goals by assisting them to unlock value from their data. HP offers personal computing, imaging, printing products, and related services. The company operates through these business segments: personal systems, printing, and corporate investments. The Personal Systems segment designs commercial and consumer desktops and other technological applications and services to satisfy the retail and consumer market demand. The Printing Segment gives consumer and commercial printer hardware and supplies. The corporate investment segment comprises HP Labs and other business incubation projects.


Founded in 1939, headquartered in Palo Alto, California (USA)

President & CEO: Enrique Lores

Number of Employees: 53,000

Market Cap: $36.09B

EV: $39.96B

LTM EBITA: $5.46B

LTM Revenue: $557M

LTM EV/Revenue: 1.1x

LTM EV/EBITDA: 6.7x


Company Details: (Target - Zerto)


Zerto is a technology company that provides disaster recovery, backup, and data mobility services through cloud-managed software. The company was founded in 2009 and has raised over $183M through 10 rounds of funding, with over $50M being raised in 2020. They help over 9,000 customers around the world and have partnered with over 350 IT departments.


Founded in 2009, headquartered in Boston, Massachusetts (USA)

CEO: Ziv Kedem

CFO: Roy Golding

Number of Employees: 527

Total Funding Raised: $163M in equity and $20M in debt

Revenue (2018): $114.4M


Projections and Assumptions

Short-term consequences


Zerto’s acquisition will accelerate the growth of HPE GreenLake, HPE's cloud platform, and add to the HPE shift towards a cloud-native, software-defined data services business. More specifically, the acquisition will directly expand the Greenlake IT infrastructure's disaster recovery capabilities, enhance the financial profile of the HPE storage business segment, and standardize HPE's recurring revenue growth streams. In addition, the acquisition expands GreenLake - a key growth driver and achieves HPE's short-term business strategy. HPE wants to focus on being a high-margin business that will mobilize resources to the more rapidly growing areas of cloud, such as software-defined networks and converged and hyper-converged infrastructure.'


After the integration of Zerto, HP customers will have the ability to recover in minutes from ransomware, cyberattacks, and other unexpected downtime and retrieve their original data seconds before the disruption.