Analysis

posted on 02 July 2008 14:31

Overland reckons it has a decent chance of turning its $3.6 million purchase of Adaptec's Snap Server business back into a jewel approaching if not reaching the original $100 million value paid by Adaptec back in 2004.

Why should this be so?

Adaptec eventually had a $40 million run-rate Snap server business but it dwindled to less than half that at $18 million. Although it has gained leadership in the volume NAS (network-attached storage) market and has a good brand name the business isn't profitable and Adaptec has bailed out of this profit-leaking ship giving the salvage job to Overland.

When carrying out its due diligence, Overland CEO Vern LoForti said, this issue was of great concern. They identified several factors, such as marketing, financial and sales-related ones, that collectively led to the business's lack of profitable success. Adaptec, when it bought Snap server, wanted to get into the finished solutions business. It also bought EuroLogic about that time. But, following the purchase there was a CEO change followed by a strategy change with a greater emphasis on being in the components business.

The EuroLogic and Snap Server businesses were now non-core and Adaptec tried to divest itself of them succeeding with EuroLogic, selling it to Samina, but failing with Snap Server. It was retained but, being off-strategy, didn't get the resources it needed to become profitable.

In Overland's view it only had half as much sales resource as it needed, and the marketing budget, according to Overland marketing VP Ravi Pendekanti, was meagre indeed, with just two press releases issued in 18 months.

Despite this the product was good and sold well, just not well enough to make a profit. This suggests that the product team is good and well-motivated despite being starved of resources. Give it the resources it needs and it should deliver the reinvigorated product development goods.

Overland expects to be able to reverse this. Pendekanti already has an expanded marketing budget and the aim is to build on the product and brand strengths - probably the widest-known name in the NAS market - by pushing for more sales of Snap Server. Overland sees enhanced appeal in its own overall product offer by adding in the Snap server line as an additional way to protect data, but using a NAS interface.

Overland has found that there is a fair amount of overlap between the Snap Server customer base and its own and a similar channel focus. There is also the happy co-incidence of the Snap Server Guardian O/S sharing the same Linux kernel as Overland's REO Protection O/S leading to prospects of cross-fertilisation. We can expect new features for both products as well as completely new products.

Adaptec turned a $100 million business into a $3.6 million one in four years.The purchase negotiations were handled directly by Vern LoForti himself. By negotiating to buy the business for a fifth of its run-rate value he's shown that Adaptec wanted to get rid of this profit-leaking bucket as quickly as it could. If Overland can turn its $3.6 million investment back into a $100 million business that would be a hugely impressive coup and Snap Server could become a jewel in Overland's crown.

^{[Chris Mellor.]}