martinwolf Transaction Analysis

Financial Information

• Total Transaction Size: $2.7 Billion
• Implied Enterprise Value: $2.4 Billion
• EV/LTM Revenue: 2.9x

Transaction Facts

• HP (NYSE:HPQ) announced earlier today that it had entered into a definitive agreement to acquire Aruba Networks  (NASDAQ:ARUN), a provider of network access solutions.
• The purchase price, at $24.67 per share, is a 1 percent discount to Aruba’s close on Friday, when rumors about the deal drove the share price to its highest level in almost two years. It is a 34.4 percent premium to Aruba’s close on Feb. 24, before rumors of the deal leaked. Since Feb. 24, HP’s stock price has declined 9 percent.

Building Capabilities with Proven Performance

• Pending Split No Curb on Appetite for M&A: This deal, Meg Whitman’s largest as CEO, is the first major transaction since the company announced in October that it would be splitting its PC and printer business from its corporate hardware and services operations. The Aruba operation, which is expected to heavily cater to enterprise mobility requirements, will report to the head of HP Enterprise Group Antonio Neri.
• M&A at HP Has Checkered History: This deal is also HP’s largest deal since its $11 billion acquisition of Autonomy in 2011, which led to an $8.8 billion write down in 2012. That was after other major write downs following HP’s $1.2 billion Palm purchase, $14 billion EDS purchase, and, going back to 2001, its $25 billion purchase of Compaq. Substantive acquisitions have historically been challenging for HP, as the complexity of its business model makes target identification, appropriate size and integration exceptionally difficult.
• Bolstering Networking with A Proven Competitor: Aruba reported revenue of $729 million in fiscal 2014, and its market share at 11.5 percent is a distant second to Cisco’s 48.3 percent. HP is expecting the company to grow that market share, especially as its own networking segment has negatively contributed to HP’s revenue in the past.
• Analysts Mixed On Predictions: Aruba’s potential revenue contribution would total less than 2 percent of HP Enterprise’s overall revenue. While some analysts have commented that this deal complements HP’s 2010 acquisition of 3Com Corp. for $2.7 billion, others believe the company may have been better off courting higher value cloud or big data software vendors.

For more information on this transaction, click here.