Seagate Buys EVault, Moves Into Storage Services

January 8, 2007 Timothy Prickett Morgan

Disk and tape storage maker Seagate Technology wants to expand into online backup services, and that is why the company has acquired EVault, one of the pioneers in the fast-growing market for online backups, for $185 million in cash.

Seagate is one of the dominant suppliers of disk drives into the enterprise, and is co-developer with IBM and Hewlett-Packard of the LTO tape format that is taking over the tape archiving market in a steady, methodical manner. But for many customers, making off-site backups is becoming as important as having onsite archives, and that is why online data vaulting is becoming popular. And the advent of cheap Internet bandwidth as well as fat, fast, and inexpensive disk drives and tape cartridges behind those electronic vaults means that it is now practical to offer such services.

EVault was founded in 1997, and while the privately held company does not provide financial results, in its fiscal 2006 it has said that its sales grew by 44 percent to somewhere in the middle $30 million range; customer count has grown by nearly as much, with over 8,500 customers worldwide signing up either directly or indirectly, through reseller partners, for its online backup services. As the calendar year closed, EVault’s sales were north of $10 million a quarter, and it was bringing several million dollars to the bottom line. Even with EVault’s fast growth, Seagate has paid a pretty hefty premium for EVault based on these numbers, but being able to supply the key infrastructure behind online backups–the disk drives–at cost will give Seagate a clear advantage over other online backup providers as well as a means of wringing more profits out of its acquisition over the long term.

EVault has 250 employees, and these workers as well as the EVault products will be rolled into the Seagate Services group. Seagate executives cited data from analyst reports during the acquisition announcement, which was made in late December, that suggested there were 74 million small- and medium-size businesses worldwide, and that data backup and recovery was one of their biggest challenges.

In September 2005, Seagate bought Mirra, a company with 35 employees that created a storage appliance called the Personal Server that allowed people to access that storage from anywhere on the Internet. A cynic might call this a Web-based file server, and wonder what the big deal was, but the idea behind the Personal Server is that it would connect to a home PC or small office network and provide secure access to personal content, such as documents, photos, or music files.

Then, in April 2006, Seagate acquired ActionFront Data Recovery Labs, which provides remote data recovery services for disk storage. Seagate had partnered with ActionFront to launch a service based on ActionFront’s products called Seagate Data Recovery Services in April 2005. ActionFront has 45 employees and runs recovery centers in the United States, Canada, and Europe.

With ActionFront and EVault, Seagate can offer disk drives, onside tape archives, online archives, and online data recovery to customers–and do so across a full range of operating systems, including Windows, Unix, Linux, and i5/OS.

Seagate, which went public in 2003 for the second time after being taken private during the dot-com bust, says that it expects the acquisition to be finalized by April 2007. The company brings in roughly $10 billion a year in sales and has a market capitalization of nearly $15 billion as we go to press. The company’s profits have shrunk substantially in recent quarters, so Wall Street is not exactly pleased that Seagate is shelling out $185 million for EVault, but the company’s share price is trading near its all-time high as the year opens, so the Street isn’t that angry.

Time will tell how Seagate can convert EVault into serious money. But if anyone can, Seagate probably can. In fact, it is surprising that EMC, IBM, or HP didn’t beat Seagate to the acquisition punch on this one.

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