A Recent History of SD-WAN M&A
The Comcast Business acquisition of Masergy is but the latest in the SD-WAN merger frenzy as players elbow for market share in the fast growing SD-WAN industry.
*Updated March 2022*
On August 25, 2021, Comcast Business announced that they signed a deal to acquire Texas-based Masergy Communications. Teaming up with Masergy, a pioneer in software-defined networking (SDN) space, means that Comcast Business now has a legit enterprise arm and is now a big name in SD-WAN/SASE.
The Comcast acquisition is but the latest merger in the SD-WAN sector as players elbow for market share in a bull market; the merger frenzy is expected to continue as SD-WAN continues to take share from legacy MPLS. The MarketsandMarkets research firm forecasts the SD-WAN market to grow from $1.8 bn in 2020 to $8.4 bn by 2025 — a CAGR of 34.5%.
Given the excitement around the acquisition, we wanted to take a closer look at the history of SD-WAN M&A, but I couldn’t find a great resource online... so I figured I’d write one!
(Quick) State of the SD-WAN Market
Who runs the show today?
Cisco - Through acquisitions Cisco has expanded its offering to include SD-WAN appliances, cloud onramp technology, and SD-WAN security. Cisco held 38% market share in 2020 (#1 by revenue) and currently serves 70% of the Fortune 100.
VMware - VMware entered the SD-WAN market via acquisition in 2017 and held 10% market share in 2020 (#2 by revenue). Through multiple acquisitions they now offer SD-WAN appliances, a central management platform, and thousands of cloud onramp gateways.
Versa - Versa was a true pioneer in SASE/SD-WAN and has not participated in any M&A (that I can see of), but that hasn’t stopped them from taking 9% of the market as of 2020. Their portfolio now includes a vast array of SASE+SD-WAN solutions. As the only “startup” in the top six, analysts expect that Versa is the next most likely M&A target.
HPE - Two large acquisitions have propelled HPE to #4 in the market with 8.2% market share as of 2020. Their suite of SD-WAN solutions, which teams up Silver Peak and Aruba, provide an all encompassing WLAN-to-WAN-to-edge solution.
Fortinet - Practically tied with HPE at 8.1% market share in 2020, Fortinet’s solutions are now heavily focused on SASE+SD-WAN with their latest acquisition in 2020.
Palo Alto Networks - Palo Alto acquired a 5% market share player in 2020 (CloudGenix, discussed below) to become a formidable competitor in the space. Their solutions include devices, a consolidated WAN fabric, and contiguous network monitoring.
Other SD-WAN providers note:
Juniper Networks - recently acquired two SD-WAN startups, discussed below
Oracle - recently acquired an SD-WAN startup, discussed below
Aryaka - has raised >$100 million in VC backing
Cato Networks - has raised >$100 million in VC backing
As you can see, almost all of the top players above have participated in some form of a “buy and build” strategy regarding their SD-WAN solutions - meaning they have participated in M&A to bolster/strengthen and expand their existing offerings.
Why all of the M&A?
The recent reshuffle of SDN providers demonstrates how SD-WAN is displacing Multiprotocol Label Switching (MPLS) as customers seek the high reliability of MPLS with more flexible redundancy, security, and scalability options.
For more information on how the two compare, check out our SD-WAN vs MPLS blog.
If you’re curious how the two services are priced, check out our WAN Pricing Guide.
According to TeleGeography, use of MPLS declined 24% from 2018 to 2020 and SD-WAN migration played a major role in the decline. Based on their annual WAN Manager Survey, TeleGeography concluded that while only 18% of enterprises had installed SD-WAN in 2018, that number increased to 43% in 2020.
The growing utilization of SD-WAN is the M&A catalyst for buyers, ranging from large networking providers to small startups, who are working to either:
Break into the SD-WAN market for the first time via acquisition, or
Bolster their positioning/suite of services, expand their geographic reach and/or customer list in SD-WAN
However, it’s worth noting that SD-WAN still has a very small % of WAN market share according to many resources.We weren’t able to find much data on purchase price / acquisition multiples for the following list of SD-WAN M&A deals, but we have a hunch the valuations are on the rise along with utilization.
SD-WAN M&A Timeline
We’ve grouped together the list of historical SD-WAN deals we found into three categories:
SD-WAN Provider Acquisitions - acquisitions that were the acquirer’s first foray into SD-WAN. Primarily done by providers who offer complementary services such as cloud or security products (and sometimes financial buyers/minority investors)
Acquisitions to Bolster Existing SD-WAN Offerings - acquisitions that were meant to add on to the acquirer’s existing SD-WAN capabilities/customer base
SD-WAN Related Services M&A - noteworthy deals of complementary services (this is NOT a SASE deal list)
See any deals missing below? Email us at [email protected] and I’ll add it to the list.
SD-WAN Provider Acquisitions
The latest big name to enter this list is Zayo Group, the growing fiber giant, who announced its acquisition of QOS Networks on January 12, 2022. Financial terms of the deal were not disclosed.
Prior to the acquisition, Zayo provided SD-WAN through a partnership with Versa Networks.
My two cents is that this acquisition is driven by private equity decision making rather than a really rational business combination. Both Zayo and QOS are private equity backed.
Brian Lillie, chief product and technology officer at Zayo, told FierceTelecom, “The Zayo-QOS combination will create choice and flexibility for enterprise CIOs as they think about their edge and multi-cloud connectivity architecture. Furthermore, this combination will enable CIOs to decide whether they want a co-managed or fully-managed SD-WAN solution, a solution choice that Zayo couldn’t do before."
Hewlett Packard Enterprise (HPE)
HPE finalized its acquisition of Silver Peak for $925 million in September 2020. HPE envisioned Silver Peak's portfolio as part of its Aruba Network (which HPE acquired in 2015) Edge Services Platform (ESP). The combined product offering leverages an enterprise edge-to-cloud transition addressing all elements of WAN and wired and wireless LAN.
According to Aruba Networks founder and President of HPE's Intelligent Edge Services Keeri Melkote, "By combining Silver Peak’s advanced SD-WAN technology with Aruba’s SD-Branch and remote worker solutions, customers can simplify branch office and WAN deployments to empower remote workforces (and) enable cloud-connected distributed enterprises."
After attempting to build their own SD-WAN offering in house in 2017, Oracle realized they wouldn’t be able to get to market in time with an adequate offering. This led to Oracle’s acquisition of Talari Networks in November 2018. Terms of the deal were not disclosed. Talari Networks is an SD-WAN provider with a presence in over 40 countries. Talari touts a proprietary FailSafe technology that maintains highly secure and predictable P2P and cloud connectivity across any IP network.
"Talari’s technology is optimized for data center connectivity and its recent move to deliver a cloud solution for Office365 and NetSuite make it a natural complement to Oracle’s cloud infrastructure," said analyst R. Scott Raynovich. He added, "Given that Oracle is a software company and not an enterprise networking vendor, the goal of this acquisition is likely to improve the performance of Oracle’s cloud software."
Palo Alto Networks
In April 2020, Palo Alto Networks spent $420 million to purchase CloudGenix, another provider of cloud-delivered SD-WAN to bolster its SASE platform. Six months after the deal closed, Palo Alto announced that it had updated the CloudGenix SD-WAN product by adding AI operations (AIOps) capabilities.
The SD-WAN offering now integrates seamlessly with Palo Alto's Prisma Access SASE. Concurrently, Palo Alto also heralded the release of two new SD-WAN routers, the ION 1000 and the ION 9000.
Palo Alto's CEO and chair Nikesh Arora stated, "CloudGenix has shown a tremendous vision for how enterprises need to shift their security posture in today’s cloud-scale, distributed environments. The integration of our platforms.. will benefit not only our combined customer base but the industry at large as it continues to undergo network and security transformation."
In December 2017, VMWare purchased SD-WAN provider VeloCloud for a reported $449 million. Before the merger, VeloCloud (its product line is now called "VMWare NSX SD-WAN by VeloCloud") claimed 20% of the SD-WAN market.
While $449 million may sound pricey for a startup, VMWare spent $1 billion in 2012 to buy Nicira (now VMWare NSX), another SDN startup. They continue to strengthen their offerings via acquisition to this day (more on VMware below!).
Bolstering Existing SD-WAN Offerings
Adaptiv Networks was founded in 2002 and has long focused on organic growth and product development in SD-WAN. Their first major SD-WAN acquisition took place in July 2020 when they acquired ELFIQ Networks (formerly a division of Martello Technologies Group) for CA$800,000. Quebec-based Adaptiv Networks, a cloud-native SD-WANaaS provider, acquired ELFIQ Networks as part of its strategy to provide a larger portfolio of SD-WAN solutions to midsize enterprises.
"By combining ELFIQ Networks and Adaptiv Networks teams, we will be able to better serve our joint customers and partners globally with no interruption during the integration period," Adaptiv Networks CEO Bernard Breton said.
As mentioned above, the deal that inspired this blog post is Comcast Business’ recently announced acquisition of Masergy Communications. Comcast already offers an SD-WAN product today, but the acquisition will bring new credibility and customers to Comcast's enterprise offerings as Masergy was an early pioneer in the SD-WAN/UCaaS/CCaaS space.
Bill Stemper, the President of Comcast Business, noted “Masergy provides a perfect complement to our portfolio of enterprise services and solutions and will allow us to instantly and dramatically amplify our growth in the global enterprise market.”
Cisco has been offering SD-WAN for many years and has also acquired quite a few SD-WAN adjacent companies historically. In August 2017, Cisco spent $610 million to acquire privately-held Viptela, a cloud-first SD-WAN provider. In return, Cisco received a compliment of technologies to facilitate its enterprise SD-WAN deployment and management. Said Cisco Enterprise Networking Group SVP Scott Harrell: "With Viptela and Cisco, we will be able to deliver a comprehensive portfolio of comprehensive on-premises, hybrid, and cloud-based SD-WAN solutions."
Extreme Networks doled out $73 million for Ipanema SD-WAN (formerly part of InfoVista) in August 2021. This deal follows the heels of Extreme Networks' acquisition (for $210 million) in 2019 of Aerohive Networks' portfolio of SD-WAN and security solutions.
"Together, Extreme and Ipanema provide channel partners an expanded solution set from the industry’s fastest-growing cloud-network management company and a proven SD-WAN innovator to grow existing customers, attract new customers, and expand into new markets and segments," said Extreme Networks' CRO Joe Vitalone.
Juniper bought 128 Technology for $450 million in October 2020. Juniper sought to integrate its WAN Assurance software, branch SRX portfolio, and Mavis Virtual Network Assistant with 128 Technology Session Smart networking. The unified platform will optimize UX from client to cloud.
Juniper Networks CEO Rami Rahim stated, "The acquisition of 128 Technology will enable Juniper to accelerate in a key area where we are seeing enormous success – the AI-driven enterprise."
In January 2020, VMWare announced its acquisition of Nyansa, an AI-based networks analytics firm. With the merger, Nyansa brought exposure to over 20 million client devices to VMware’s roster. This acquisition could arguably fall under the “SD-WAN related services” section, but Nyansa’s SD-WAN specific AI product kept it here.
"Nyansa and VMware are perfectly aligned in technology, products, and culture," Nyansa CEO Abe Ankumah declared. "Joining forces with VMware provides an amazing platform for Nyansa to continue executing... an analytic-powered and software-defined virtual cloud network that connects clients to containers in dynamic and distributed enterprises."
SD-WAN Related Services M&A
Cybersecurity solution vendor Fortinet purchased OPAQ Networks — a secure access service edge (SASE) provider — in July 2020 for an undisclosed sum. OPAQ saw success with its Zero Trust Network Access (ZTNA) cloud solution, which safeguards all elements of distributed networks including branch locations, data centers, BYOD, and IoT.
In his remarks on the acquisition, Fortinet Chair and CEO Ken Xie said, "In this era of hyperconnectivity and expanding networks, the network edge stretching across the entire digital infrastructure, networking, and security must converge." He added, "The acquisition of OPAQ further enhances our existing SASE offering."
Long known for its appetite for snapping up startups, Juniper previously acquired Mist AI in March 2019 for $405 million. The deal leverages Juniper's networking portfolio by adding Mist's WLAN platform to Juniper's LAN, security, and SD-WAN offerings.
Juniper’s CEO commented, "We believe in the Software-Defined Enterprise and Mist’s focus on bringing AI to IT is consistent with our core belief that we need to simplify operations and improve the customer experience while lowering costs."
Private Equity Firm M/C Partners
Private equity firm M/C Partners purchased an undisclosed stake in QOS Networks in September 2020. QOS, an MSP focusing on SD-WAN solutions, will now "expand into several ancillary areas such as security as a service (SECaaS) and end-user network management." QOS CEO Frank Cittadino added, "Our services and management platform delivers a superior experience to global clients through real-time edge network visibility and control."
This deal is another example of the keen interest private equity firms have in the emergence of SD-WAN. For example, several private equity firms have funded SD-WAN provider Aryaka, including Goldman Sachs Private Capital Investing, Deutsche Telekom Capital Partners (DTCP), Third Point Ventures, and India's Nexus Venture Partners.
What's Next for SD-WAN?
The "musical chairs" of SD-WAN acquisitions has been in play for the past several years. With the onslaught of the COVID pandemic and increased work-from-home using BYOD, mergers have only accelerated. As Rayovich wryly notes, "Now, everybody and their cousin in the networking market are putting together an SD-WAN strategy."
SD-WAN solutions must balance cloud applications performance, cloud security, and multi-cloud connectivity. Both Microsoft and Amazon have enabled their clouds to integrate with SD-WANs points-of-presence (POPs), hastening the user's cloud access. VMWare, Cisco, and Citrix have all touted their recent efforts integrating with Azure and AWS.
Expect the blitz of SD-WAN M&As to continue apace. With the SD-WAN space projected to grow exponentially over the ensuing years, integrating cloud app performance has become vital to SD-WAN providers. SaaS platforms like Office 365, AWS, and Google Apps have established standards for performance. Hence, SD-WAN vendors need certification enhancement programs as a "trust" selling point to customers.
Too, as cybersecurity concerns grow, SD-WAN must integrate with cloud-based security applications instead of on-premise hardware. Also, SD-WAN solutions must be part of a multi-cloud SASE to enhance connectivity with international cloud providers.
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