A vendor of embedded Linux-based KVM servers (keyboard, video, mouse servers) has agreed to acquire a vendor of embedded Linux-based console servers. Avocent says its $90 million acquisition of Cyclades will allow it to diversify its product offerings, while taking advantage of Linux's rapid growth in the enterprise server… market.

KVM devices, Avocent's traditional strength, provide remote or “out-of-band” management of Windows-based servers. The Windows server market is growing at 9-10 per year, said Avocent CEO John Cooper in an investor call yesterday. Cooper based his estimate on research from IDC and Gartner, he said.

Console servers, Cyclades's traditional strength, offer out-of-band management of devices that can be controlled through a console interface, including network equipment, server appliances, and Linux-based servers. Cooper said he believes the Linux server market to be growing at 15 to 18 percent per year, based on IDC and Gartner research.

Both companies base their out-of-band management devices on embedded Linux, and Avocent CFO Ted Blankenship described the two company's engineering toolsets, platforms, and programming languages as “complementary.” He also said that the Cyclades direct sales channels in 19 countries would complement Avocent's reseller channel structure, and that Cyclades's in-house manufacturing and testing capabilities would generate cost-reducing synergies.

CEO Cooper emphasized that one important new product will be an integrated management suite capable of managing both KVM and console servers.

Avocent will pay $90 for Cyclades, which reported an unaudited book value of $8M for its most recent earnings year. The bulk of the remaining $82M will be amortized over 3-5 years, mainly as good-will and other intangibles, according to CEO Cooper. Additionally a “couple million of bank debt” will be promptly paid, Cooper said, and a $6M employee retention fund will be established and paid out over three years. Avocent expects the deal to be acretive to its fiscal 2006 earnings.

The deal is still subject to regulatory approval; however, integration plans are already underway, Blankenship said. No product line or order fulfillment changes are expected within 2-3 months from the closing date, which is expected prior to March 31. The companies expect to achieve management and process integration within six months, and product line unification and new product shipments within a year, according to Blankeship.

Cyclades has 350 employees, and has major offices in Fremont, Calif., Munich, Germany, and Sao Paolo, Brazil.

Cooper said, “This deal plants us firmly in the Linux server space. We see a growing adoption of Linux in server space, as well as growth in the console server space.”

He added, “To quote ESPN, this deal is as cool as the other side of the pillow.”

 
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