Imation Acquires Nexsan; Steps Toward Full-Service Storage Provider

In the first of what I'm sure will be many acquisitions in the storage business this year, Imation announced today that it is acquiring disk array vendor Nexsan for $120 million in cash and stock. This acquisition continues Imation's transition from a media vendor to a general-purpose storage vendor for the SMB, and now SME, market--and leaves XIO as the last of the previous generation of storage startups to remain independent.

Nexsan was one of the first vendors to bring low-cost ATA, and later SATA, drives into the data center with its ATABoy, SATABoy and SATABeast arrays. Nexsan has cultivated a reputation for efficient and reliable, if not very exciting, bulk storage systems for archives, backups and similar non-OLTP applications. During the past two years or so, Nexsan has greatly enhanced the value its storage systems add beyond simple bulk storage, so the current E-Series arrays and NST5000 unified storage systems have more than the usual set of features, including support for hybrid SSD/HDD configurations.

For several years now, Nexsan has also been quietly shipping the Assureon object storage system for archival data; the acquisition gives Imation an entree into this newly hot segment of the storage biz.

For its part, Imation can trace its history to 1996, when 3M spun off its data storage division. 3M, a company with a long history in coated materials from sandpaper to Post-it notes, had been a leader in applying ferric oxides to polyester film to create not only the legendary Black Watch nine-track tape but also floppy disks and its pioneering DC300, QIC and Travan tape cartridge systems. But the 1996 spin-off of Imation's products included not just tape and floppy disks but also CD-R and related optical media, which Imation now sells under the Memorex and Imation brands but no longer manufactures.

Imation has had more difficulty in recent years as demand for removable media of all kinds, with the possible exception of USB thumb drives, has declined precipitously. Despite expanding into secure USB thumb drives and a variety of consumer products like phone chargers and audio gear under the TDK Life on Record brands, Imation has lost money for the past six years.

In addition to trying to leverage the brand equity it built with floppy disks and CD-Rs in the consumer market, Imation has been making small acquisitions in the SMB storage arena, including ProStor, whose RDX removable disk cartridge technology is resold by market leaders such as HP and Dell, and deduplicating backup software vendor Nine Technology. Nexsan's arrays and NAS systems will let Imation move from the SOHO/SMB market into the midsize data center where Nexsan already has 11,000 customers.

The $120 million price tag--$105 million in cash and $15 million in Imation stock--looks like a good deal, especially considering that Nexsan took on less than $10 million in venture funding during its 12-year life. On the other hand, Nexsan did $82 million in business last year with a 40% gross profit margin, which makes $120 million look like a bargain. Did Nexsan's VCs want to cash in rather than owning a profitable company long term? We may never know.

Clearly, Nexsan's products will benefit from being part of a bigger company, especially in the international markets where Imation is much better established that Nexsan was. Hopefully, they'll lead Imation back to a profitable and significant position in the storage industry.