Sources: Packeteer Eyeing Tacit

It looks like the relationship between Packeteer and startup Tacit Networks is about to get closer.

Industry sources say Packeteer is about to acquire Tacit, less than eight months after the two entered a reseller deal to combine WAN optimization and wide area file services (WAFS) wares. (See Packeteer Gives Tacit Approval.) One industry source says Packeteer could pay as much as $60 million for the startup.

"It makes sense," reckons a storage analyst who claims a deal is imminent. "They have an existing relationship with joint selling. They're already practically joined at the hip."

Packeteer and Tacit refused to comment on the speculation, but industry sources say the deal has been in the works for months and could be announced next week. It would be Packeteer's second acquisition in the space, following its $16.5 million grab of Mentat in December 2004. (See Packeteer Primes Protocols.)

A Packeteer-Tacit acquisition would continue several trends in the WAN acceleration/wide area file services (WAFS) market. First, several public companies have gobbled up startups. Cisco bought Actona and FineGround, Juniper acquired Peribit, and F5 picked up Swan Labs. (See Cisco Acts on Actona, Cisco Chomps FineGround, Peribit Deal: More to Come and {80153}.)Then there's the integration of WAN acceleration and WAFS. Packeteer started in the first category, concentrating on quality of service (QOS) traffic shaping and bandwidth monitoring. Last month it added TCP and HTTP acceleration from the Mentat deal. (See Packeteer Primes Protocols.) Tacit would give it additional WAFS capabilities, such as CIFS and MAPI optimization.

If the deal goes through, it may not be the first time Packeteer has tried for Tacit. Another industry analyst says Packeteer wanted to buy Tacit last September when they forged the reseller agreement, but nothing materialized due to Packeteer's rocky quarter. Packeteer has since put together two quarters of solid revenue growth, increasing from $24.8 million in the third quarter of 2005 to $32.3 million in the first quarter of 2006. Packeteer ended last quarter with $137.1 million in cash and equivalents.

"With Packeteer's rebound and their joint selling activities, you can expect it to happen now," says this analyst of a Tacit acquisition.

Even insiders without knowledge of an imminent deal say they expected Packeteer and Tacit to combine eventually.

"If I were Packeteer, I would be thinking about how to get into this space. Packeteer has a good solid business, but there are a number of pieces of technology that they would be advised to put in their box," one source says. "They have the QOS locked down, but they need to look at WAFs and higher-end compression."Another analyst agrees. "I would not be surprised if it's true -- Packeteer has a very good product in the QOS rate-shaping space, and Tacit has good file caching product, but neither of them have a really complete solution."

According to Infonetics Research, Packeteer led the $236 million WAN optimization appliance market last year, with Expand, Juniper, and Riverbed right behind. But the market is still in its early stages, and competition is expected to grow fiercer. Cisco will likely become a contender. Riverbed could be strengthened by partnerships with Hewlett-Packard and McData and its pending move to the public markets, and application-delivery appliance vendor Blue Coat recently entered the space. (See Riverbed Makes It Official and Blue Coat Puts On Acceleration.).

It's not clear how a Packeteer-Tacit deal would affect Tacit's partnership with Fibre Channel switch vendor Brocade. Brocade is an investor in Tacit and sells Tacit products through an OEM deal. (See Brocade Invests in Tacit.) Brocade is looking to diversify beyond switches in order to gain on switch rivals Cisco and McData (which has an OEM deal with Riverbed). It's unlikely Brocade would be willing to give up plans for WAFS differentiation if there were an acquisition. (See Brocade Talks Up Tapestry and McData Hits Remote Control.)

Dave Raffo and James Rogers, Senior Editors, Byte and Switch

Organizations mentioned in this article: