Multiple sources report that Nutanix is considering a sale to private equity or an infrastructure supplier.
The Wall Street Journal reported that the software company had received a takeover approach and started exploring sale options. Reuters also raised the possibility of an acquisition. Nutanix has not yet officially responded to the industyr’s jungle drums.
These reports spurred an 24 percent rise in Nutanix stock from $21.15 to $26.14, giving it a market capitalization of $5.93 billion:
Any offer is likely to be at a premium to the market value and indicates a bid would start above $6 billion and head towards the $7-$8 billion level. Wells Fargo analyst Aaron Rakers went further. He told subscribers: “We think investors could consider a potential takeout price in the $35-$40/share range.” That’s 33.8 to 53 percent higher than the current price, implying an acquisition valuation of $7.9-$9.1 billion.
Full fiscal 2022 revenues were $1.58 billion, up 13 percent on the year, with a loss of $797.5 million, better than the year before loss of $1.03 billion.
Revenues declined 1 percent year-on-year in its fourth fiscal 2022 quarter, ended July 31, to $385.5 million, with a loss of $151 million, but Nutanix achieved positive free cash flow. These results followed the company saying it would lay off 4 percent of its headcount, 270 employees, in August.
There were reports of acquisition interest in September from Bain Capital, an investor in Nutanix, through a $750 million convertible senior notes investment made in August 2020. That was when co-founder and then CEO Dheeraj Pandey announced his retirement. Two Bain managing directors joined Nutanix’s board when the investment was made.
After Broadcom bought VMware, the hyperconverged infrastructure market went down to two standalone players, Nutanix and the much smaller Scale Computing. Nutanix has a loyal and committed base of 22,600 customers, which is growing at a 620 to 650 each month. These customers are typically starting with a single Nutanix product and then widening their commitment by using others.
That has to be an attractive proposition to any potential acquirer. The company is on the way to becoming profitable and that likely increases its attractiveness as an investment.
Which IT infrastructure companies might be interested?
We can rule out Broadcom as it has VMware. Could system vendors such as Dell, HPE, and IBM be interested? Dell has a strong VMware relationship and recently spun off the company. IBM has Red Hat and its own hypervisor. This is based on KVM, which underlies Nutanix’s hypervisor. So there is an integration opportunity there.
HPE has Simplivity HCI. Buying Nutanix would send that into a minor role within HPE’s organization; it already has a minor role in the market, of course. We could imagine that an HPE-Nutanix combination would have formidable market presence and Nutanix’s subscription business would fit in with HPE’s GreenLake strategy.
HPE’s channel would also expand Nutanix’s reach. Nutanix hardware independence would need to be respected but that is not an insuperable problem; Dell managed it with VMware.
Rakers commented: “As we think about the company’s strategic alignment, we have continued to be most interested in the company’s alignment with HP Enterprise for hyperconverged infrastructure, while also maintaining relationships with Lenovo, Dell, IBM, Fujitsu, and Inspur.” He said he sees HPE as a strategically important Nutanix partner.
We can likely rule out NetApp and Cisco as prospective acquirees; their storage and networking infrastructure businesses are quite different from Nutanix’s more up-stack positioning. But never say never.