Extreme sees this new extension of its strategy to become an enterprise networking powerhouse as creating strong synergies between their existing channel, and the 5000 partners on the Aerohive side.
Extreme Networks has announced the acquisition of cloud-managed networking provider Aerohive networks. Extreme will acquire all of the outstanding shares of Aerohive’s common stock at a price of $4.45 per share in cash, for a purchase price of approximately $272 million. With Aerohive having a net cash balance of $62 million at the end of March, the deal is equivalent to a $210 million purchase price.
Aerohive was among the first companies to offer controller-less Wi-Fi and cloud network management, and is the second leading provider of Cloud Managed Wireless LAN Services. On the other hand, they compete in a tough market where the other players have all been acquired by bigger companies: Meraki (Cisco); Aruba (HPE); Mist (being acquired by Juniper) and Ruckus (now owned by Arris, which in turn is owned by Commscope).
“Aerohive is a company that is sub-scale and has been suffering from that,” said Norman Rice, Extreme’s Chief Marketing, Development and Product Operations Officer. “We believe that their technology is superior, however, with a third-generation cloud and a brand new agile system.”
Rice emphasized that the acquisition of Aerohive is the logical continuation of Extreme’s long-term strategy to build the company into a major enterprise networking player.
“Four years ago, we started on this process with a new management team, to stabilize the business, identify enterprise alignments, capitalize on capabilities and build enterprise franchise value,” Rice said. “The next step from there was building out, but we didn’t have a ton of financial resources. So we were creative in doing three asset deals in rapid succession to bring wireless, campus switching, and data centre capabilities from Zebra, Avaya and Brocade. That gave us scale and the ability to reinvest in the business. Our focus with those three was driving operational efficiency and better gross margins, to build out the infrastructure of the business to one where we could scale, and where we could move from near the bottom of the industry to the top in efficiency.” That also included investments in reducing friction with partners and customers through measures like autonomy for distributors, and using digital transformation to empower the channel to be more autonomous from Extreme.
“This deal with Aerohive was also about how we can best continue and accelerate our growth,” Rice indicated. “We have an award-winning on-prem management capability, very robust access controls and analytics from data centre to the wireless LAN today. But on the cloud side, we have had only an emerging cloud capability. While we do have an Extreme cloud, we do not have a large footprint in customers, and we were behind in feature functionality. What we are doing here is acquiring a brand new third-generation cloud with complete agile development capability to address cloud management. It makes us much more competitive in wireless LAN right as the market transitions to Wi-Fi 6. It gives us a total turnkey solution that would have taken us a long time to develop. That gives us an opportunity to leapfrog competitors.”
Extreme will merge their wireless management solution into the Aerohive cloud, add more applications to it, and port their existing cloud customers there.
“That will expose them to much more robust feature functionality,” Rice said. “It will get us into new adjacencies and into new segments for us like retail banking outside the Fortune 50, health care, and quick-serve restaurants.”
Unlike the previous three acquisitions in their enterprise initiative, where Extreme acquired assets of three different companies, with this one, they are acquiring the whole company. Aerohive will be absorbed into Extreme Networks.
“This will bring us between 20,000 and 24,000 net-new customers and 5000 or so Aerohive partners.” Rice said. “Our Extreme partners have been asking us for a cloud solution that’s competitive with Meraki. Now they have that. Aerohive partners wanted a broader switching portfolio to compete against Meraki-Cisco. Now they have that. We will also give the Aerohive channel the opportunity to work with Extreme, which has much better quality in terms of incentives, training and support. We think the Aerohive partner base will be pleased with this. It’s a win-win for both sets of partners, and the immediate feedback has been enthusiastic.”
Rice thinks that the implications from Aerohive’s existing OEM deal with Dell will also be positive for Extreme.
“Aerohive has had two important OEM deals, one with Juniper and one with Dell,” he said. “The Juniper one expired, there was limited follow-up, and when Juniper acquired Mist that ended whatever was left. On the Dell side, however, Aerohive has some close relationships there. It’s technically an OEM, but Dell teams can offer a variety of products to their end customers and select the Aerohive cloud as an offering to their customer. We see that as a big opportunity to work with Dell and expose more of our opportunity to that client base.”