Mulling Midrange Optimism
July 24, 2017 Alex Woodie
It can be hard to be positive about the state of the IBM i server. While there are occasionally signs of growth, the overall size of the market is a small fraction of what it used to be. Outside of Rochester, you can scarcely find an IBMer who can even spell “eye bee em eye.” But a recent merger involving third-party vendors indicates there may be hidden life in the legacy platform.
Last month’s blockbuster acquisition involved IBM i HA software vendor Vision Solutions being sold by Clearlake Capital Group to Centerbridge Partners in order to merge it with Syncsort, a provider of ETL and data management software for IBM mainframes and Apache Hadoop.
The fact that Centerbridge, a private equity firm with about $25 billion under management, would spend $1.2 billion to take a majority stake in two vendors with large installed bases in IBM i and mainframe could indicate that those “legacy” platforms may be more valuable than initially thought.
“If I’m a System i ISV or shop, getting that kind of capital invested in legacy platforms, System i and mainframe – to me that’s a fairly big story,” says Vision CEO Nicolaas Vlok. “It hasn’t happened in years. Centerbridge made a big investment into the universe that we all know and love.”
While IT Jungle doesn’t have access to the private firms’ figures, we’ve been told that Vision’s valuation actually increased compared to the last time it changed hands, which was just over a year ago. That was also before Clearlake sold the Double-Take business to Carbonite, leaving Vision to focus on providing high availability and disaster recovery software for Power Systems, the vast bulk of which is tied to IBM i.
If the $1.2 billion spent was split fairly equally between Vision and Syncsort – both of which were in Clear Lake’s portfolio – then that means Vision was probably worth somewhere between $450 million and $650 million. Take these rough figures with a hefty dose of salt, but they’re likely at least in the ballpark.
Vlok, who plans to stay on through the merger with Syncsort, says the transaction could be “transformative and market-defining” for the next five to 10 years.
“I think the platform is a lot more stable than what some people would make it out to be,” he tells IT Jungle. “The folks who today are running it are not going to just jump to different platforms, because there’s a reason they’re running it. I think there’s a very loyal following on both of these platforms. Some of the smart investors realize that it’s a market that’s healthy and profitable. But there’s also not a lot of competition coming into it trying to disrupt it, as you’d find in other markets. And it makes for a good, probably low-risk investment with healthy returns.”
Vlok’s assessment would seem to be good news for the midrange market, which has been in a state of consolidation for the past 17 years. While it’s likely that more mergers and acquisitions will happen in the coming years – particularly as the aging founders of IBM i software companies seek exits – the idea that the midrange installed base is loyal, somewhat stable, and profitable to serve could be an enticement for continued investment.
Centerbridge has dubbed the Vision and Syncsort transaction “Big Iron to Big Data,” which is an interesting description. The big data market, as personified by distributed open source systems like Hadoop, has attracted a ton of hype over the past five to 10 years. That hype, in turn, has led venture capitalist to invest billions of dollars in software startups.
But the big data hype is beginning to wane a bit as the reality sets in that it’s actually really hard to get big value out of the mounds of unstructured data coming from Web logs, mobile phones, social media, and sundry other sources, particularly when the customer has to stitch together dozens of open source products themselves to get it all to work.
When you consider how much time and money the Web giants like Yahoo spent creating Hadoop – and how companies like Facebook still struggled mightily to make it work and how IBM’s Watson has been benched in hospitals that tried to implement it – then you realize that big data is not nearly as automatic as they make it sound. That has led to the current trend in big data, where more integrated platforms that eliminate all that cobbling together of code are gaining favor. [Editor’s shameless plug: you can read all about big data trends over at Datanami.com.]
If “integration” and “avoidance of complexity” sound a lot like the design principles of the IBM i, then you’re paying attention. And so too are the money men, apparently. This could be a very successful combination.
But charting a successful course from “Big Iron to Big Data” will not be easy for Centerbridge. The company, which intends to fold Vision’s business into New York-based Syncsort this fall, will have to grapple with all sorts of technical and cultural issues separating those two camps. Whereas the Big Iron crowd values things like predictability, stability, and security, the Big Data crowd values open source, rapid change, and agility.
The big ace in Centerbridge’s hand, though, is Big Iron’s relationship to data. In an age when so much data is being generated that it’s practically unfathomable – the equivalent of 10 million Blu-Ray disks per day – the relative value of each successive bit necessarily goes down. The structured data sitting in IBM i and mainframe databases, on the other hand, is among the highest valued on earth. Helping companies tap into this pool of clean and trustworthy data using new analytic technology and techniques could be a very profitable endeavor, indeed.
This is a big potential upside. But even if it fails, the risk of stranding $1.2 billion in a market with relatively flat growth but one that at least is still profitable sounds like one that’s worth taking.
“I would not say it’s a platform that’s fast moving, but it has a very solid underpinning,” Vlok says. “The System i or mainframe is not necessarily a market leading platform where a lot of change and competition is trying to outrace each other, but it’s a solid stable platform where you can count on it being around.”
While not everyone values stability, it’s a trait that the Centerbridge folks in New York and London are willing to pay a small premium for. “To me it’s one of those no brainer stable environments,” Vlok says. “If you thought it would have been gone 10 years ago, and if you thought it would be gone by now, you’re wrong. If you think about where you want to be in ten years, I think it will be exactly the same thing.”
In lieu of crazy Big Data growth, 50 years of Big Iron stability looks pretty darn good. The fact that Centerbridge put a value on that is itself a reason for optimism.
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Why do folks call it “Legacy”, it maybe old but it is still damn good! 🙂