Extreme Networks, Inc. (NASDAQ: EXTR) and Broadcom Limited (NASDAQ: AVGO) today jointly announced that they have entered into an agreement for Extreme to acquire Brocade Communications Systems, Inc.’s data center switching, routing, and analytics business from Broadcom following Broadcom’s acquisition of Brocade. Brocade’s data center networking business will be sold to Extreme for $55 million in cash, consisting of $35 million at closing and $20 million in deferred payments, as well as additional potential performance based payments to Broadcom, to be paid over a five-year term.
Extreme expects the acquisition to be accretive to cash flow and earnings for its fiscal year 2018 and expects to generate over $230 million in annualized revenue from the acquired assets. The acquisition is expected to close within 60 days following the closing of Broadcom’s acquisition of Brocade.
“The addition of Brocade’s data center networking business significantly strengthens our position in the expanding high-end data center market and reinforces our strategy of delivering software-driven networking solutions focused on enterprise customers,” said Ed Meyercord, President and CEO of Extreme Networks. “As Extreme is the only pure-play end-to-end, wired and wireless enterprise IP networking company in the world, we believe Brocade’s data center customers will benefit from our dedication to delivering high-quality, software-driven, secure networking solutions and the industry’s highest rated customer support. Today’s announcement, coupled with our recent announcements regarding our position as the stalking horse bidder of Avaya’s networking business and the successful completion of the integration of Zebra’s wireless LAN business, along with Extreme’s organic investments in R&D, will result in a state-of-the-art, newly-refreshed portfolio of enterprise solutions for our customers.
“Moreover, this acquisition is important as it expands our commercial relationship with Broadcom,” continued Meyercord. “We already have our 200 Series of value oriented switches leveraging Broadcom’s FASTPATH operating system software and this transaction will only broaden our strategic partnership. Finally, given the strong profitability of Brocade’s data center business, this transaction will accelerate Extreme’s objective to achieve gross margins in excess of 60%.”
“Extreme is highly complementary to our data center switching, routing, and analytics business on many levels, and represents a positive outcome for our customers, partners, and employees,” said Lloyd Carney, CEO of Brocade. “Our two companies have similar strategic visions and believe that innovation will increasingly be driven through software capabilities that allow customers to successfully transform their networks for digital business. Both companies are pure-play networking providers, serving the enterprise edge to the data center core. And both companies consistently demonstrate a customer-first culture, placing a high value on excellence in customer and partner support. In addition, we believe Extreme’s desire to build on the innovation and momentum of our completely refreshed data center portfolio, including the new SLX family, as well as its intention to drive the ongoing success of our VDX and MLX families, will allow our customers and partners to continue to leverage the full benefits of our world-class portfolio.”
This announcement is the latest in a series of acquisitions that Extreme has announced over the last six months to expand the company’s state-of-the-art portfolio of data center, core, campus and edge networking solutions. In October 2016, the company closed its acquisition of the wireless LAN business from Zebra Technology Corporation, which is expected to generate over $115 million in annualized revenue. Earlier this month, the company announced that it entered into an agreement with Avaya Inc. to be the stalking horse bidder to acquire its networking business in an auction process. The transaction remains subject to customary closing conditions and regulatory approvals and is currently anticipated to close within 2 to 3 months. Extreme expects the Avaya business to generate over $200 millionin annualized revenue.
Terms of the Transaction
The closing of the transaction is contingent on Broadcom closing its acquisition of Brocade, previously announced on November 2, 2016 and approved by Brocade shareholders on January 26, 2017. Broadcom presently expects to close the Brocade acquisition in its third fiscal quarter ending July 30, 2017. Extreme expects to fund the transaction with funds resulting from an anticipated amendment increasing its existing credit facility.
The transaction is subject to customary closing conditions, including certain regulatory approvals, but does not require shareholder approval by either company, is not subject to any financing conditions, and is presently expected to close approximately 60 days following the closing of Broadcom’s acquisition of Brocade. Extreme will file a Current Report on Form 8-K with the Securities and Exchange Commission providing further details regarding the terms of the transaction.