News Analysis: CEO David Scott and venture capital firms Menlo Ventures, Worldview Technology Partners and Mayfield Fund will come away with many dollars when the deal is done.
In the aftermath of the out-of-control bidding war that recently
concluded with Hewlett-Packard outspending Dell at $2.35 billion for
storage maker 3PAR, the winners undoubtedly are enjoying one of the
sweetest Labor Day weekends of their lives.
Those victors include CEO David Scott and venture capital firms Menlo
Ventures, Worldview Technology Partners and Mayfield Fund.
Menlo owns 15 percent of 3PAR, Worldview 13.4 percent, and Mayfield 10
percent. At the $33 average stock price that HP ended up paying for the
Fremont, Calif.-based utility storage company, the financial harvest
from the acquisition would read like this: Menlo $309 million,
Worldview $277 million, and Mayfield $205 million.
Had the three VCs decided to cash out before Aug. 13, when the stock
price was under $10, they would have earned back about $231 million. By
waiting a couple of weeks, their investment return ballooned to $791
Scott also owns a hefty amount of stock, and it has been reported that
he will be banking something in the neighborhood of $65 million when
the deal is signed and delivered. Of course, the formality of
stockholders approving the sale still must take place, but nobody's
worried about anything bad happening on that front -- not with this
much money changing hands.
If you bought 3PAR before Aug. 13, you paid less than $10 per share.
It's now worth more than three times that amount, so the math looks
awfully good for those lucky enough to have made that choice.
Because 3PAR is a mature storage company with good technology but that
hadn't been setting the world on fire with its sales performances ($134
million in sales for 2009, according to IDC), investors might have
easily decided to cut their losses and sell out much earlier.
In total, the three VC firms had poured about $183 million into 3PAR
during a seven-year period. For much of that time, 3PAR's stock was in
single digits; in fact, it was selling for under $10 ($9.65) on the
last trading day before the first news of acquisition by Dell was
announced, which caused HP to start the bidding war on Aug. 23.
You can buy 3PAR for about $33 today.
Fortunately, the three VCs elected to go for the long view and hold on
to the investment. 3PAR then suddenly became a classic case of "right
place at the right time" when HP and Dell both saw the light at the same moment
and decided to have their showdown.
Why was HP so hot on 3PAR?
HP Executive Vice President for Storage Dave Donatelli, who joined HP
in May 2009 following a long tenure at EMC, said about 3PAR that "we
believe we have a good opportunity to grow revenue and grow at a very
nice margin, which drives our business case. What I would add to it is
that we have built up a great track record of doing transactions of
Donatelli pointed out that since its April 2010 acquisition of
networker 3Com for $2.7 billion, HP already has more than 300
proof-of-concept networking projects under way.
"I think this is a great analogy for this transaction," Donatelli said.
"What a lot of these smaller companies with good technologies have a
problem with is that customers want to buy from fewer, larger companies
that they trust, and that have global support for them.
"Looking at 3Com for a moment, very quickly after the acquisition, we
were able to get them into huge accounts globally. That's by taking our
scale and marrying that with their technology. From my perspective, a
3PAR transaction is very similar. This is a company that has good
technology but does not have the ability to bring it to market."
HP can bring 3PAR's wares to market directly, through channel partners, or through the HP services group, Donatelli said.