March 5, 2014
Note – Despite contacting both HP and Box, neither company would comment on acquisition rumors.
Last night I wrote about the rumor circulating on anonymous application Secret that cloud file sharing vendor Box had cancelled its planned (but never publicly announced) IPO. At the time the suggestion was that customer churn was the reason for the decision.
I’m now hearing from multiple sources that in fact Hewlett Packard is either in the process of acquiring, or in the late stages of investigating an acquisition of the company. If true, this would be a mammoth deal for both HP and Box. Box has already raised over $400 million in venture funding and was seen, alongside arch-rival Dropbox, as one of the biggest IPO candidates for the year. Despite having previously had acquisition offers on the table, CEO and co-founder Aaron Levie has seemingly been focused on building a strong and independent business.
For HP the rumor comes soon after statements by CEO Meg Whitman that the company will start looking at acquisitions again. HP has been a little shy of buying companies ever since its Autonomy deal back in 2011. That deal was widely seen as a trainwreck and, at least in part, led to the downfall of then CEO (and architect of the Autonomy deal) Leo Apotheker. The $11 billion buyout was quickly followed by an $8.8 billion write down, indicating an admission by HP that it had greatly overpaid for the company. At last month’s earnings call, Whitman had this to say about the company’s M&A focus:
I do think we will now be considering acquisitions. As this market changes very dramatically, you can see we may need acquisitions in security, big data, mobility and cloud
HP has $9.1 billion in free cashflow so a deal like this is eminently doable. But doable and sensible are two very different things. Would an HP acquisition of Box make sense for its customers and prospects? Frankly, I’d have to say no.
HP’s background has always been hardware. As the impacts of both cloud computing and the end of PC sales have impacted upon their revenue, HP has been forced to find alternative means to make money. They’ve been talking up a hybrid cloud story – embracing the OpenStack initiative to deliver a consistent public/private cloud. They (in)famously bought Autonomy to give themselves a product covering the big data analytics space. HP previously inked a partnership with Box, but that doesn’t seem to be anything particularly substantive.
Box does likely have the highest revenue of any of the contenders for the cloud file sharing crown – as I detailed in a recent post, it’s combination of ease-of-use with sufficient enterprise-level functionality seems to give it the advantage over Dropbox. Box is a very different beast from traditional vendors. It sells an end user product that, at least traditionally, sold into enterprises because users found it intuitive to use. Indeed Box’s enterprise focus was a departure from its original vision as a consumer product. This is a very different sales process and conversation than HP’s traditional IT-centric, top down approach.
Some might suggest that Box could be the launchpad from which HP could have a far broader end-user penetration within enterprises – that said, HP’s acquisition of Palm was, to an extent, designed to do the same thing and that ended badly for all concerned. If, however, HP is looking at the acquisition as a way of inculcating a culture of agility and innovation across the organization, and believes it can leverage the credibility, energy and creativity of Levie and the team that he’s built around him, that could be interesting. It’s a risky path to take – when SAP acquired SuccessFactors, it’s CEO Lars Dalgaard was intended to fill just this sort of role – that never worked out and Dalgaard left SAP seemingly frustrated by their lack of agility.
If the deal is confirmed it will be interesting to read of both HP’s and Box’s perspective and rationale. I’ve reached out to both companies for comment and as yet haven’t had any response.