Scale Computing CEO questions SimpliVity valuation

Jeff Ready claims valuation shows that SimpliVity's revenue is lower than most in the industry thought

The CEO of hyper-converged vendor Scale Computing has questioned both the valuation and revenue of competitor SimpliVity after HPE announced its acquisition of the firm for $650m.

While the takeover was met with a positive response from partners, the agreed fee has raised eyebrows for some given that SimpliVity had boasted a valuation of over $1bn in 2015 after raising $175m in Series D funding.

Jeff Ready, CEO at SimpliVity and Nutanix competitor Scale Computing, said he believes that the valuation is proof that SimpliVity's revenue is less than people thought.

"There's been a lot of speculation, and speculation a few months ago, that SimpliVity would be bought for something like $3bn - this transaction was $650m - but no one knows what SimpliVity's revenues really are.

"It's been a popular thought that maybe they were half of what Nutanix's revenues were and that would lead you, if you look at what Nutanix is valued at in the public markets, to that SimpliVity valuation [of half Nutanix's] - but I don't believe that.

"I believe their revenues are quite a bit less [than Nutanix] and so I believe less that this was a bad valuation - I suspect it was probably in line with the multiples Nutanix has - but that SimpliVity itself was doing far less business than people thought," Ready added.

Nutanix is currently valued at around $3.84bn and in it's most recent quarter recorded a turnover of $166.8m.

Vendor relations

Ready explained that HPE's acquisition creates an interesting dynamic between the tier one vendors - particularly when considering Dell's acquisition of EMC and by extension VMware.

"The real curiosity from an HPE perspective is that SimpliVity's product, like Nutanix, is a way for deploying VMware, so you deploy VMware on top of the SimpliVity hardware platform," he said.

"[This] means, because of the Dell EMC merger, that for every dollar worth of hardware that HP sells they're going to sell 50 cents worth of software that goes straight in the pocket of Dell, and that's an interesting thing."

Patrick Cooper, head of marketing and product of secondary storage hyper-converged vendor Cohesity, said that SimpliVity's backers would have been aware that the vendor was not a market leader, which would have been a factor in the decision to sell.

"The truism is that you want to be number one or number two in a market and they were not," he said.

"They were probably number five or six, and that's what happens to the guys that are on the tail, and they ended up selling out to HP.

"If you look at the numbers its interesting. VCs invested $270m in the company and they sold it for $650m, that's not a huge return.

"Typically VCs expect a 10-times return so that's a fire sale. It's too bad but if youre a smaller player in a large hyper-converged market that's probably a good exit for them."

When contacted for response SimpliVity referred CRN to the HPE media team, which wished to add nothing further to the official announcement and blog post published on Wednesday.

HPE acquisition trail

Howard Hall, managing director at HPE partner DTP Group, also highlighted the low SimpliVity price in comparison to reported valuations, and said to expect more HPE acquisitions in the future.

"I think they've got it at a good price definitely, it sounds like someone has done a good deal," he said.

"It helps with the portfolio and I think it'll probably be the first of many acquisitions that HPE makes potentially in hyper-converged, and it's part of the journey to what HPE calls 'composable infrastructure', which is the HPE Synergy platform, so it helps feed their strategy."

"They've got such a massive war chest, or will have through the divestiture of EDS and the software business, so they'll have lots of billions of dollars in the bank to use."