Consolidation Within The Online Video Ecosystem

There is no denying that video or more specifically Online Video (a.k.a Over-the-Top or IP Video) has become an integral part of our lives. Many factors have contributed to this astronomical growth of IP video viewing habits -- digitization of content, proliferation of devices, increase in network capacity, ease of content creation -- just to name a few. And thanks to the revolution started by companies like Youtube and Dailymotion and taken forward by NetFlix and Hulu, this seems to be just the beginning. The online video market has definitely created both opportunities and challenges for many involved. It, therefore, comes as no surprise that when you take a quick look at the online video ecosystem, you find that it's extremely crowded, with numerous big and small players, trying to innovate within different parts of the ecosystem.

Wherever there are opportunities and innovation and large number of players involved, M&A is bound to happen. Below, is my assessment of the market ecosystem, rationale behind some of the M&A activities, and an analysis of some of the strategic moves that companies in the space have been making and will continue to make.

Key Players in the Online Video Ecosystem

At a high level, the ecosystem comprises of the content companies, who create, own or aggregate video content, and in turn either work with online video platform (OVP) companies that offer delivery, transcoding, content management (CMS), storage, advertising, and DRM services or directly work with individual companies providing these services. OVPs, further, work with delivery networks (mostly CDNs), who in turn utilize the network provided by the ISPs and Telcos to finally deliver content to end users.

• Content companies include big media companies like CNN, BBC, and NBC; premium content providers like Hulu, Netflix, EpixHD, Amazon-Video-on-Demand; content aggregators and UGC providers, like Youtube, Dailymotion, Veoh, Vimeo, and Metacafe; as well as numerous other medium and small publishers;
• Content companies publish content using the CMS provided by OVPs, also referred to as Online Video Publishing Platforms, like Brightcove, Ooyala, Kyte, Delve Networks, open-source platforms likeKaltura, and white-label providers like Twistage.
• OVPs, in turn, use Delivery Networks to deliver traffic with better QoE to end users. Delivery Networks include mainly traditional edge cache CDNs like Akamai, Limelight, CDNetworks, Edgecast, Level3 (after acquiring Savvis's CDN business) Amazon CloudFront offering, as well as smaller free community CDNs. Mid-2007 also saw the emergence of several P2P CDNs like Pando Networks, BitTorrent, Rawflow as well as a hybrid model where edge cache CDNs also offered and P2P CDN services, mainly by acquiring P2P players (Akamai-Redswoosh acquisition). With video distribution there is now some push in the P2P and community CDN market through projects like P2P-next. Also within the delivery network space are CDN-Balancer and CDN-arbitrage companies like Conviva, Cotendo, Dyn and 3Crowd, that load balance CDN traffic based on cost and performance metrics.
• Delivery networks have their PoPs (points of presence) in the edge and, therefore, need to utilize the network offered by ISPs and Telcos, who have access to the last-mile (e.g. AT&T and Comcast in the US, British Telecom in UK, France Telecom and Telecom Italia in Europe, Telstra in Australia), to reachend-users on multiple platforms (or as they call "three-screens" , computer, mobile, and television). Delivery Networks usually have free peering relationships with the ISPs and Telcos, although things are changing on that front, thanks to the huge amount of transit traffic imposed on the ISP network, driven primarily by video consumption -- case in point is the recent charges imposed by Comcast to Level 3.
• Then there are content monetization companies such as Video Ad Networks, which include both high-touch ad networks like Yume, Tremor Media, SpotXchange, ScanScout (acquired by Tremor Media), BrightRoll; as well as Ad Marketplaces like Google Video AdSense, Adap.tv Marketplace. There are also Video Ad Management and Ad Server companies like OpenX, Adap.tv, DoubleClick DART, Liverail, Eyewonder (acquired by Limelight) and the Video Ad Agencies, which again include both agency conglomerates like Omnicon, and WPP Group as well as independents like SMART, and TAXI. Ad networks prefer to work directly with the content companies, but sometimes (albeit very reluctantly) work with the OVPs to get access to large inventory.
• Content Security companies include content ID, fingerprinting, and watermarking technology providers like Civolution, Vercury, Vobile as well as companies offering DRM (Digital Rights Management) solutions, e.g. Microsoft (PlayReady DRM), Adobe (Flash Access or FAXS DRM), Apple (Fairplay DRM) .
• Video Analytics: All OVPs typically provide some sort of video analytics. However, there are companies like TubeMogul, Omniture (acquired by Adobe) and Skytide, that specifically focus on providing analytics to both media companies as well as service providers.
• Content Encoding & Transcoding: These include SaaS-based companies like Encoding.com, Panvidea, as well as product-based companies like Rhozet (acquired by Harmonic), Digital Rapids, Inlet Technologies, Kulabyte, and other codec providers like On2 (acquired by Google). OVPs, sometimes, run server farms in the cloud dedicated to the encoding process, but more often work with one of the cloud-based encoding provider.
• Video Servers and Storage Companies: Several companies play a part here, including those that act purely as a video streaming servers, like Blackwave (acquired by Juniper Networks), Edgeware, Harmonic, and those that provide a complete video streaming solution like Cisco CDS, and then there are a set of companies offering media servers like Adobe Flash Media Server, Windows Media Server, and Wowza Media server (providing a cost-effective solution for companies). As far as video storage is concerned, this is often offered by the CDNs themselves, or the OVPs, or through cloud-offerings like Amazon S3, Rackspace, or other specialized video storage companies like Omneon (acquired by Harmonic).
• Video Player Companies: Again all OVPs either provide their own video player skin, or resell / partner with independent video player companies like Flowplayer, JW Player, Adobe's OSMF (Open Source Media Framework) player, etc. Some of the media companies like BBC provide their own player, (i.e. iPlayer), to have better control over the QoE of their viewers.
• Video Plugin Companies: These are the big-3, namely Adobe, Microsoft, and Apple that provide the interface to the browser in the form of Flash, Silverlight and Quicktime plugins. A new fourth player in the ecosystem that emerged recently and is giving the big-3 a run for their money is HTML5, an evolution of HTML that lets users play video on the supported browsers without the need for a plugin.
• IPTV and Connected Devices Companies: This includes a whole host of companies like Roku, Boxee, Google TV, Vudu (acquired by Walmart), Apple TV, Sling Media's SlingBox, gaming consoles like PS3 and Xbox, set-top box providers e.g. Tivo, DVRs. They provide software or hardware for users to watch online video directly on their television.

Finally, there are several other Value added services such as video search and SEO companies like ReelSeo and TruVeo (now part of AOL), and video measurement companies like Gomez, and Keynote.

The Video Value Network

By now, one thing should have been very clear and that is that online video is really a crowded market, with value (and hence $$) flowing between different players in various directions. Since there is no single value chain in this ecosystem, in the figure below, I have depicted what I would like to call as the "Value Network", where value and $$ flow in opposite directions, but between two entities in the network. Understanding this so-called 'Value Network' is important, because this lays the grounds for all the strategic moves (whether organic or acquisitive) that companies are making in the space.

OVP: A Central Player

Look closely at the figure above. You will see that the OVPs, of which there are many in the market today, assume a quite central position within the Value Network. Content companies like to use OVPs primarily because it is a one-stop shop for all their video publishing needs, but also because small and medium sized content companies can get access to cheaper bandwidth and higher ad CPMs, due to OVPs' ability to aggregate traffic and hence assert greater negotiating power with CDNs and Ad Networks. On the other hand, CDNs, Ad Networks and Encoding companies like to work or partner with the OVPs, because they aggregate traffic from multiple content companies all over the globe and hence bring in more traffic volumes. Large content companies, like BBC, (who have hundreds of Terabytes of traffic per month) that previously used to be reluctant to using OVPs, are now slowly changing their minds, although they still don't want to relinquish their power to a single OVP.

Nonetheless, the power that resides in directly dealing with Media companies is too much to ignore and therefore, OVPs have been one of the key acquisition targets, by CDNs (Limelight - Delve acquisition), by ISPs, by other technology companies (Cisco - ExtendMedia acquisition, Google - Episodic acquisition, AOL -StudioNow acquisition) and this trend is going to last for several years to come.

The CDN Arena

The CDN business started off with Akamai and a few others providing edge caching solutions for small Internet objects (mostly static images and text files). But as the traffic increased owing primarily to increased P2P traffic consumption with several torrent and file-sharing sites springing up, P2P CDNs started to emerge. This was, of course, followed by edge caching CDNs acquiring P2P solutions to offer a hybrid CDN solution. This consolidation continued even until very recently when Velocix acquiring Live P2P technology from Rawflow and struck a deal with Kontiki's P2P streaming solution. There were also some M&A activities within the CDN market itself where bigger CDNs gobbled up some of the smaller ones (Akamai - Speedera acquisition).

As the Internet world slowly started moving towards more video consumption, a big challenge started to rear its ugly head for the ISPs.

ISPs found that in order to support the increased traffic now passing through their own network, driven primarily by increased video consumption, their infrastructure costs increased dramatically. They saw themselves spending billions of dollars on infrastructure each year to support this increased usage. On the other hand, their revenues did not increase at a commensurate rate, because they were not charging their subscribers based on the traffic consumed. The benefits of this increased network usage were, however, reaped by the delivery networks, who got paid at a per GB or per Mbps rate from the Content Providers, while having a free peering relationship with the ISPs, and by companies like Cisco and Juniper who provided the networking gear to the ISPs.

On the flip side, now with this increased demand for CDN services, the CDN suppliers market started to explode. Small CDN providers with a few PoPs started to offer CDN services at rock bottom prices. This also gave birth to a whole set of companies (Cotendo, Conviva, Move Networks) focusing on CDN-arbitrage and CDN-balancer. CDN prices, as a result of all of this, started to race to the ground.

These factors together contributed to a number of M&A activities, strategic moves, and investing activities within the CDN market.

Firstly, service providers, telcos, and even managed hosting sites either started acquiring CDNs (Level3 acquiring Savvis's CDN business), or offering CDN services themselves by adding their own PoPs

(AT&T started offering CDN services after much rumors about it acquiring Akamai)

or reselling CDN services from existing CDNs (Deutsche Telecom and Navisite both reselling Edgecast CDN services).

Secondly, service providers' biggest suppliers, i.e. networking gear vendors like Cisco, Alcatel-Lucent, and Juniper suddenly started acquiring some of the players within the ecosystem to be able to serve the service providers better. For example, Cisco acquired ExtendMedia, Alcatel-Lucent acquired Velocix mainly for its Metro product, Juniper acquired Ankeena and Blackwave.

Thirdly, as CDN services had become a commodity in places like US and Europe,

existing players in these regions went on to acquire other players within the non-CDN ecosystem to offer differentiated services (e.g. Limelight acquiring Delve; Akamai acquiring Velocitude) and

places outside of US and Europe, especially China started to gain steam within the CDN market. For example, ChinaCache filed for IPO, and Prime Networks, a CDN backed by Andreesen-Horowitz, launched CDN services in China.

Also for the same reason, CDNs started to acquire their smaller counterparts

as a way to acquire customers quickly

(CDNetworks acquiring Panther Express, Highwinds acquiring Bandcon).

Monetization is Crucial

There have been several sizable M&A deals within the online advertising space in the last few years -- Microsoft - aQuantive, Yahoo! - Right Media, Google - DoubleClick, Google - Ad Mob, Apple - Quattro deals -- just to name a few, but those were mainly in the online or mobile non-video world. As the world moved more towards the online video, content monetization became quite a challenge and, therefore, also an opportunity.

Online video viewers have been pampered with a lot of free content with offerings from Hulu, Youtube, etc, and they are reluctant to pay for OTT video. This means that content monetization through paid subscriptions is definitely a challenge. Hulu launched HuluPlus, its paid subscriptions earlier this year, but it does providesome free content on the site. Meanwhile, smaller players still struggle to monetize their traffic through paid subscription. So the next best alternative is to monetize content through advertising whether pre-rolls or overlay video ads. However, owing to (a) dearth of short-form (15 to 30 sec) ad campaigns, which are best suited for the online video viewers, (b) lack of scale in ad inventory buying, and (c) end-users' ability to skip viewing the ads (either by closing them down in case of an overlay ad, or by browsing away to a different browser window, while the ad plays, etc.), ad CPMs and hence revenues from advertising remain quite low as compared to broadcast television.

Clearly, content monetization is a challenge in the online video world, and players who either have innovative products or have developed a good network of advertisers and publishers lie in the sweet spot for potential acquirors that include bigger ad networks, CDNs or even Tech companies with deep pockets (e.g. Tremor Media - ScanScout acquisition, Limelight Eyewonder and Limelight Kiptronic acquisitions).

Content Companies

Who can forget one of the progenitors of online video namely Youtube and its $1.6 bn acquisition by Google. Well, content provider / aggregator acquisitions such as those (albeit, at not such an astronomical price) are continuing till date where Tech and Media companies are buying up small and medium sized content providers/aggregators, which offer UGC or premium content. (AOL - 5 min Media acquisition).

As far as the big media companies go, they are good acquisition targets as well. In fact, as increased amount of video started getting consumed online, leading to IPTV related products such as Google TV, Vudu, Boxee, Roku, Apple TV starting to emerge, there was talk of "cord-cutting", because now viewers could pick and choose what content they want to view anytime, rather than view what was being broadcasted, and additionally not have to pay cable subscriptions. This sent a cold shudder through the spine of cable or satellite providers, whose sole bread and butter depended on subscribers paying for cable services. So to battle this challenge started acquiring large content providers. The idea was to to retain control over how content was distributed. The $30bn M&A between Comcast and NBCU was a classic such example.

Cable companies, furthermore, adopted a if-we-can't-fight-them-let's-join-them strategy and began offering OTT television services themselves. Comcast, for example, started offering their 'Xfinity' service, where users could access content from any device, so long as they were active cable subscribers.

Although acquisition of NBCU was a rather large and probably infrequent M&A event, it clearly shows the path that cable companies are going to take. So we should be prepared to see a bunch of acquisitions in the content provider space, whether UGC or premium content, because no matter what you say, content is still the king.

Other Acquisitions

A few other acquisitions worth mentioning are Google's acquisition of On2, a video codec company; Adobe's $1.8 bn acquisition of Omniture, a video analytics company, Walmart's $100 mm acquisition of VUDU, all three of which although occurred for different strategic reasons, but does prove the immense potential lying within the players in the online video ecosystem.

Future M&A Trends

Based on the above analysis, there are a few M&A trends that we can expect over the next few years.

1. Acquisition of OVPs: OVPs will continue to get acquired because of the large number of innovative ones in the market today and also because they hold a key position in the value network. Look out for an Ooyala, Kaltura, Kyte acquisition in the near future by either a Tech giant or by an ISP. Brightcove, has been talking of going IPO for several years now, but if a company does want to write a huge check (of late we have been seeing several of them), then it will be no surprise if Brightcove gets acquired by a Tech company or an ISP.

2. Acquisitions in the CDN Space: ISPs will continue to invade the CDN business, by offering CDN services within their own network, and interconnecting with other ISPs and CDNs wherever necessary. There will also be a large number of M&A activities, with ISPs buying big CDNs. Akamai has probably grown too big, but a Limelight (mkt cap of $692 mm) or an Edgecast or a Bitgravity acquisition should not come as a surprise to any of us. Also there is, a very high likelihood of CDN-Balancer / CDN-Arbitrage companies like Conviva, Cotendo, Dyn, and 3Crowd to get acquired, by an ISP.

Meanwhile, big CDNs like Akamai and Limelight will themselves continue to buy up other players within the online video ecosystem, including Ad server companies, OVPs, etc., to be able to differentiate themselves from the whole host of mom and pop CDNs who claim to provide the same level of services at a fraction of their prices.

3. M&A within the Video advertising space: Do expect M&A activities to continue within the advertising space. Innovative advertising companies like Yume, Freewheel, Innovid, Amobee, might get acquired by big ad networks, CDNs or Technology companies with a stake in the advertising and/or online video world (Microsoft, Google, Apple, etc.).

4. Consolidation within each major ecosystem entities: Owing to the fact that there are numerous players still within the industry with good technology or customers or both, there is bound to be more consolidation within each of the segments identified above in the Value Network. This means that, for example, bigger ad networks will acquire smaller ones, and deep-pocketed hi-tech companies will buy online video technology providers like encoding companies or content security companies.

5. Content companies: The sense of insecurity and fear created in the minds of cable and satellite providers with increased OTT video consumption, might well trigger some of the content companies being bought over by the cable guys. This will ensure that the cable companies have full control over who delivers that content, over what medium, and to which subscriber. Additionally, many of the smaller players will get acquired by Tech companies, other bigger content companies, and cable and satellite providers.

Overall, the online video market is still nascent with a lot of promise, challenges, and opportunities. We will continue to see a lot of innovation within various segments, huge amounts of investment flowing in, good amount of M&A deal flow, and strategic moves both by players within the industry, and outsiders who want to enter this market.

HP vs Dell vs 3PAR - The Dance

Bidding wars can do wonders for companies looking to exit. It can get you premiums unheard of in the market - case in point was the recent 3PAR acquisition announcement by HP.

Just came back from a presentation at TIE, the entrepreneurial organization that caters to budding entrepreneurs. The presentation was about the 3PAR acquisition and the presenter was Kevin Fong (investor from Mayfield Funds). Originally Ashok Singhal (CTO of 3Par) was supposed to join as well but he had to cancel in the last minute, because HP didn't want too much noise (really!!!) around the acquisition until the deal actually closes. Nonetheless, it was a phenomenal session. The presentation was great, but the part I usually like the most in any presentation is the Q&A, and this session was no different. Lots of very insightful and pointed questions, and very candid answers from Kevin. Unfortunately, since 3PAR is a public company, he could not disclose any non-public information.

Now, first things first.

So what's so unique about 3PAR and why were HP and Dell so desperately interested in it? Well, its all about the so-called "Cloud Computing". Cisco, IBM, HP, Dell are all vying to make it big in the Cloud Computing revolution. Now, one of the big components in the Cloud Computing ecosystem is high-end storage components. 3PAR happens to be one of the technology leaders in the area of the so-called "thin provisioning", which is a form of virtualized storage. In fact, 3PAR, in some sense, directly competed with EMC, a company several times larger than 3PAR itself.

Now as far as the big players are concerned, Cisco had made an acquisition of Andiamo Systems, a storage switch company, way back in 2002, but the integration of the company did not go very well. In 2008, they felt the need for a storage solution pretty desperately, and there were speculations of Cisco acquiring EMC. Eventually, however, they ended up with a partnership with EMC on the storage front and that partnership is apparently going well for Cisco. IBM, on the other hand, made a $300mm or so acquisition of XIV, an Israeli storage company in Jan 2008. So Cisco and IBM were out of the game. HP and Dell, the two other big players and also two of the fiercest competitors, had both been looking for a storage play. They had made some acquisitions of their own, but were still OEM-ing storage equipments from EMC, and wanted to sell their own storage equipments by expanding their storage product portfolio. That besides, both of them were (and still are) sitting on hordes of cash on their balance sheet. The few available companies at that time were 3PAR, Isilon, Compellent and Data Domain. Data Domain was picked up by EMC in late 2008 for an astronomical amount of $2.4 billion, again after a lot of bidding dance with NetApp, and with a $57 mm termination fee paid to NetApp in the process. Termination fee, (a.k.a. break-up fee) as most of you might know, is the amount a target company pays to a potential acquiror, when the former breaks a definitive acquisition agreement. This usually happens, if and when they get a better offer from another suitor. Anyway, coming back to 3PAR, clearly, with its 52% revenue growth rate, it was quite an attractive target for both companies.

The Initial Dance Steps

Apparently, HP was the one to first approach 3PAR with an acquisition offer of $12.75/share, on July 2nd, at a time when 3PAR was trading at $9.65/share, and hence a 30% premium. So what did 3PAR and the investors do ? Firstly, they rejected HP's offer, because they thought that at $12.75/share, they were undervalued. Secondly, they went ahead and hired an investment bank and went on to market themselves to more suitors. For this, they chose to work with Frank Quattrone from Qatalyst Partners, an M&A advisory investment bank, with whom Kevin had good relationship, and who had worked on several relevant high profile deals including HP/Palm, EMC/Data Domain.

3PAR and Qatalyst approached several suitors and obviously, Dell responded saying that they wanted to pay around $15-17/share. Qatalyst came up with a 5-year exit after-tax-EBITDA multiple of 15.0x to 20.0x, which when discounted to present value (at 10-13% discount rate) arrived at a valuation range of $16 - $21 per share of 3PAR. As an aside, EBITDA, which stands for earnings before interest, taxes, depreciation and amortization is a widely used financial metric for any company valuation.

So when Dell came back and offered a price of $18 per share, 3PAR management and investors thought it was a pretty good deal, based on the valuation analyses Qatalyst provided to them. However, their fiduciary responsibility was to maximize shareholder value (which included themselves as well) and so had to think of ways to get higher offers from both parties.

So what did the investors and management do ? They waited for a little bit, expecting HP would respond. But HP, for good or for bad, just went silent. So 3PAR went ahead and signed the definitive agreement accepting the $18/share offer from Dell. As you might imagine, an acquisition agreement comes with several clauses and this one was no different. The agreement from Dell barred 3PAR from shopping the offer due to confidentiality reasons. It also had a break-up fee of $52 million. The offer, furthermore required 3PAR to give Dell a 3-day matching rights clause. This meant that in the event another suitor came in with a counter-bid, Dell would have 3-days to match the offer.

The deal was now announced in public and, in fact, this was the first time the public came to know of 3PAR's intention to make yet another exit after its IPO in Nov 2007. What was 3PAR shares trading at now ? The same $9.65/share, which obviously meant that the non-public information was, indeed, kept non-public. Upon announcement the share price went up to $18, again implying that the markets thought that the deal was, indeed, going to close at $18 a share. Soon thereafter on Aug 6, HP announced the departure of CEO Mark Hurd. It clearly explained the silence on HP's part, but it also confirmed that Dell was going to be the new owner of 3PAR. Meanwhile, an excited Michael Dell flew to Fremont (headquarters of 3PAR), and met with 3PAR management, where they had a company presentation, where Michael Dell welcomed everyone to Dell and explained how it would be a synergistic acquisition and 3PAR would nicely complement its related acquisitions of Equalogic (apparently it was the biggest cash purchase of a private company - $1.4 billion) and Ocarina Networks. Kevin was also preparing to meet with Michael Dell in his office in Dallas. Everyone, including the investors and management, thought it was a done deal. But the game was far from over....

Counter-Offers Abound

While everyone was excited about the new owner of 3PAR, HP recouped from the loss of Mark Hurd, and on Aug 23rd sent a big one-page advertisement to the Wall Street Journal and also to 3PAR announcing its offer price of $24 per share, a 33% premium over the previous offer of Dell. The tables suddenly got turned...

By now, the acquisition premium had risen to 148% over the unannounced share price of 3PAR. Everyone involved realized that the game was not going to get over quickly. Bound by the 3-day matching price contractual clause, 3PAR approached Dell and sure enough, Dell made an offer of $24.30 per share the same day, but also increased the break-up fee to $72 million. Three hours later, right after the markets closed, HP made another counter-offer of $27 per share. Dell immediately matched the $27 per share and the following morning 3PAR accepted the offer from Dell. Later that day HP came back with a $30 per share. This was one of the turning points in the game. The biggest pawn in the game for Dell was its 3-day matching price clause. Dell let the 3-days to expire without providing any counter offer - big mistake, one that later-on cost Dell dearly.

Few days later, after the 3-day matching price clause expired, Dell came back with a counter offer with $31 per share, and with much stringent clauses and a higher break-up fee of $92 million. 3PAR rejected the offer stating that the clauses were too stringent. Dell then made yet another attempt and came back with a revised offer of $32 per share with some of the clauses relaxed but keeping the break-up fee at $92 million, and further stated that it was Dell's "best and final offer".

3PAR was now in a pretty bad dilemma. The bidding war had stretched far too long and they knew that if they accepted the offer, there was a chance HP would never come back with a counter offer. As a result they could not reject the offer, in fear of getting into a shareholder lawsuit in case HP did not come back with a counter offer. They also could have gotten into a shareholder lawsuit, if they did not approach HP for a higher offer. But remember, 3PAR was bound by contractual agreement to not approach HP for a counter offer.

So what did 3PAR do ? They went up to HP and without mentioning anything about their outstanding Dell offer, asked HP for its "best and final offer". Fortunately for them, right before markets opened on Sept 2nd, HP made their final offer of $33 per share topping that made by Dell by $1. Around the same time, Dell withdrew its offer and 3PAR went ahead and accepted the offer from HP before the opening of the trading day at $33 per share, a whopping 241% premium over the unannounced 3PAR share price, and at a valuation of $2.4 billion. 3PAR immediately wired the $72 million over to Dell from the $100 million, Kevin said, they had in the bank in cash. Also Kevin finally did make his planned trip to Dallas to meet Michael, but the discussions were, I guess, entirely different.

One thing that did strike me, while listening to the whole story was, if all is true, then 3PAR never told HP about Dell's $32 offer. How could HP then come back with an offer that topped Dell's "final" offer by $1. Additionally, why did Dell withdraw its offer right at the time HP's offer came in ? Kevin did not clearly explain this, but said that everything was done keeping shareholder's value maximization in mind. He also said that HP (owner of 3PAR) is now in a shareholder lawsuit by 3PAR shareholders because of some odd reason. (are you kidding me!!).

In the End

3PAR had raised a total of $183 mm in venture money out of which, $100 mm came from strategic investors like Cisco, IBM, and some other early investors. The rest came from VCs like Mayfield Funds, WorldView Technology Partners and Menlo Ventures, who at the time of acquisition still held ~40% of the company's equity and made it like bandits, a whole $560 million !! Looks like they can let their next 9 investments go under and still return money to their investors.

So in the end it was a win-win situation for everyone involved -- VCs, shareholders, 3PAR employees, HP, and even Dell, that stood to gain $72 million in break-up fees !! Heard they went ahead and acquired Boomi, another cloud-computing company, for an undisclosed sum (I am guessing probably $72 million :)). Not bad at all. For the rest of us, we got a phenomenal nail-biting bidding war story. Way to go 3PAR !!!