It’s not a spin-in transaction, because it wasn’t contrived and premeditated as such, but Cisco Systems announced yesterday that it will acquire an 80-percent stake, through a $50-milion initial investment, in data-center technology company Nuova Systems.
The driving forces behind Nuova — Mario Mazzola, Luca Cafiero, Prem Jain, and Soni Jiandani — are the same principals who launched Andiamo Systems as a Cisco spin-in company.
Andiamo, which specialized in storage-area networking (SAN) switching products and technology, eventually was folded back into Cisco for $750 million in 2004. Adiamo’s advanced SAN-switching technology became the basis for Cisco’s MDS 9000, which has done extremely well for Cisco against SAN-switching competitors, some of whom are seeking mergers and acquisitions in a bid to compete more effectively against the networking giant.
Before Andiamo, the team behind Nuova was a longtime force within Cisco, playing high-profile roles in building Cisco’s enormously successful and industry-dominating enterprise-networking business unit.
Cisco brought Mazzola into the company originally in 1993, via the acquisition of Cresendo Communications. Crescendo’s technology constituted the basis for the Catalyst family of switches, a multibillion-dollar franchise for Cisco.
Obviously, the crew at Nuova has a stellar track record, and Cisco is figuring another investment in the group might provide them with a hat-trick of sorts. That, in itself, would be no mean feat.
It appears the structure of this transaction is much like the deal structure for spin-in Andiamo. In addition to Cisco’s initial 80-percent majority position in the company, procured with $50 million in cash and other considerations, Cisco retains the option of investing a further $42 million. Cisco also has the option to purchase the remaining 20 percent of Nuova, which now belongs to company’s founders and 76 employees.
It’s an interesting aside that Nuova didn’t want, and actively resisted, venture-capital investment.
If all goes according to plan, Cisco will buy the remainder of the company in late in fiscal 2008 or early in 2009. Cisco’s potential payout under a full-scale acquisition scenario would range from a minimum of $10 million to a maximum of $578 million, depending on how well Cisco does at selling Nuova products. As noted, it’s a deal structure not unlike the one Cisco used for Andiamo, and it’s also similar to the concept of performance bonuses for professional athletes.
As for what Cisco’s is getting from Nuova, aside from an illustrious roster of exceptionally accomplished and talented executives, there remain more questions than answers. Nuova closely guarded its plans and its technology, so not much known publicly about what the company hopes to achieve. Locking out VCs probably helped keep a lid on the the company’s secrets.
In the press release announcing the deal, Cisco said the following:
Nuova Systems’ product development efforts will complement Cisco’s current data center product portfolio, which includes the Catalyst 6500, Cisco’s core enterprise networking platform, the MDS line of storage switches, SFS server networking switches and application networking solutions for accelerating applications within the data center and to the rest of the enterprise.
I can’t find much detail there, but it’s apparent that the Nuova contribution will be additive and complementary to Cisco’s existing data-center product portfolio. Whatever results from this arrangement doesn’t appear to be replacing or superseding existing product mainstays in Cisco’s data-enter solution set.
Now we’ll have to see whether we can learn more about exactly what Nuova is doing within Cisco and about the ambitiousness of the revenue targets that could trigger the higher acqusition-related payouts from Cisco.
There was considerable consternation when Mazzola and his team left Cisco in 2005. Many observers wondered how the departures would affect the company’s data-center strategy and execution. Well, the Andiamo gang is back at Cisco, and it appears to have been given a significant strategic mandate to take the company forward in the data center.