With Broadcom revealing plans to acquire Brocade and then divest its networking business, which includes Ruckus Wireless, analysts are closely examining who the potential buyer could be.
"Frankly, I think people would be surprised at how many interested buyers there are," one source familiar with the situation told CRN USA, who declined to be identified. "Those buyers are a mix of financial sponsors, so private equity companies and also strategic buyers. ... There is a very strong desire from all the parties – Brocade, Broadcom and any potential buyer – a strong desire to move as quickly as possible."
In a research note, RBC Capital Markets analyst Mitch Steves said the sale of Brocade's networking business come at a price tag of around US$2.2 billion. Brocade's networking business is at an annual run rate of about US$1 billion, while Brocade purchased Ruckus for US$1.2 billion.
CRN USA breaks down the five potential buyers and the five companies that are unlikely to buy the Brocade business, according to analysts.
1. Potential buyer: Dell
Although Dell still has its hands full with its acquisition of EMC, analysts believe the Texas-based company could gain a competitive edge against Hewlett Packard Enterprise and Cisco Systems by buying Brocade's networking business. Zeus Kerravala, principal analyst at US-based ZK Research, said Dell's networking sales would get a shot in the arm from Brocade and Ruckus channel partners.
"Dell's always talking about competing better with HPE, except for networking. They have a little bit of networking from the old Force10 acquisition … but Brocade would be a really good addition there," said Kerravala. "There would be some channel reconciliation that would happen, although the Dell channel isn't a great networking channel. … Dell partners sell servers, PCs and storage, but not really networking. Brocade's channel would make a nice complement to what Dell already has."
2. Potential buyer: Private equity firms
Analysts said one of the most likely outcomes is that a private equity firm acquires Brocade's networking business. Vendors and solution providers alike have recently been scooped up by private equity firms. Polycom, a unified communications and collaboration specialist, was purchased this year by private equity firm Siris Capital Group for around US$2 billion, while security solution provider giant Optiv Security changed private equity hands Tuesday to KKR & Co.
Brocade and its channel partners would likely benefit from being acquired by a private equity firm, according to analysts.
"Going private equity, I think would be a good thing for [Brocade]," said Matthias Machowinski, networking and communications analyst for the research firm IHS.
"They could hunker down and since networking is changing and becoming a lot more virtual and agile, they can accelerate through that transition much faster if they don’t have to worry about reporting earnings to the street every quarter."
3. Potential buyer: Arris Group
Arris Group could be a dark horse in the bid to buy Brocade's networking business, according to a research note by RBC Capital Markets' Steves.
The company could leverage Ruckus to sell wireless LAN equipment to its installed customer base, according to Steves, while Brocade's switches and routers would provide product diversity beyond its customer premises equipment.
4. Potential buyer: Extreme Networks
The networking company recently purchased Zebra Technologies' wireless LAN business in an effort beef up its networking business and enter new vertical markets. Extreme Networks CEO Ed Meyercord is trying to build a bigger and broader company, which could be accomplished through Brocade, said ZK Research’s Kerravala.
"If you look at their strategy and what their CEO Ed Meyercord has told the street, they're trying to create a roll-up in the networking industry to create a bigger, more competitive vendor," said Kerravala. "This would be a case of the smaller company, buying a bigger company – so they would have to raise some money -- but there would be a case in bringing those together to create a bigger vendor that plays exactly into what they're trying to do."
5. Potential buyer: Lenovo
If Lenovo wants to bet on the converged stack, analysts said Brocade's networking business would be a great fit for the vendor. Brocade and Lenovo already have an established OEM data centre partnership.
"Lenovo understands the data centre and you could bring Lenovo and Brocade-Ruckus together and create a nice converged solution," said ZK Research’s Kerravala. "Lenovo is definitely a possibility if they want to bet on the converged stack [market]."
1. Unlikely to be a potential buyer: Huawei
It's highly unlikely that Chinese networking and telecom giant Huawei could acquire Brocade's networking business even if it would give the company an entrance into the US market, according to IHS’ Matthias.
"Huawei would have to face regulatory challenges. Will the US government give a go-ahead for such a deal? I just don’t think so," said Machowinski. "And they already have all the products in-house … It would really be just about getting a foothold in the American market."
He also said Brocade's customers include top US government agencies, "so I think there would be a lot of opposition to Huawei."
2. Unlikely to be a potential buyer: Cisco
Although there has been speculation that the networking giant has tossed its name into the mix, analysts CRN USA spoke with don't think Cisco is a possibility.
"Cisco's not buying them -- that's ludicrous," said ZK Research’s Kerravala. "Cisco's not going to buy a Broadcom-based solution. They've got their own switching solution and, frankly, they don't need it."
3. Unlikely to be a potential buyer: Alcatel Lucent Enterprise
Alcatel Lucent Enterprise is another large vendor that has been rumoured to have thrown its hat in the ring to acquire Brocade's networking business. IHS’ Machowinski said the company is an unlikely buyer due to it already owning a similar product portfolio and already established technology partnerships to fill in any gaps.
"[Alcatel Lucent Enterprise] has the wired product in-house and they do have a relationship with HPE-Aruba [Networks] on the wireless side and are also now developing their in-house wireless networking assets," said Machowinski. "I could see maybe someone like a Nokia being interested in the wireless assets, but not really Alcatel Lucent Enterprise."
4. Unlikely to be a potential buyer: Juniper Networks
Juniper Networks unveiled a trio of acquisitions in 2016 including December's acquisition of cloud optimisation service specialist AppFormix for an undisclosed amount. Analysts said Juniper is likely out of the Brocade acquisition picture because the vendor builds its traditional networking technology in-house and there's little room to innovate through Brocade's portfolio.
"Juniper's put a lot of investment into their own fabric. It would seem that the Brocade VDX would be very cannibalistic in that," said Kerravala. "I just don't see a good, forward play for Juniper here."
5. Unlikely to be a potential buyer: Arista Networks
Analysts said fast-growing networking vendor Arista Networks simply doesn't need Brocade-Ruckus as it strives to become a data centre pure-play company.
"Arista is fast-tracking to be the de facto standard alternative to Cisco in the data centre," said Kerravala. "It wants to be a data centre pure-play. … By acquiring Brocade, they would break from that mission because they would take the wireless stuff, also Brocade has some campus switching, some Layer 4 through 7 [offerings] and I think it would deviate from the data centre mission they've been talking about."