Seagate Acquires MetaLINCS For $80 million
by Aaref Hilaly on December 11th, 2007
First ZANTAZ, then Stratify, and now MetaLINCS – all within 5 months. The e-discovery space is consolidating fast!
On December 6, Seagate announced its acquisition of MetaLINCS. Financial terms were not disclosed, but my sources tell me that the price is $80 million. Given that MetaLINCS is a 50 person company with fewer than 25 customers , this is a fantastic outcome and I congratulate the MetaLINCS team. My educated guess is that in 2007 MetaLINCS will earn $5 million to $10 million in bookings, making this a healthy multiple of 8-16X. Contrast that to the 5X revenue paid by Iron Mountain for Stratify, and MetaLINCS shareholders clearly got a great deal.
That still leaves the question of why Seagate, a non-entity in e-discovery, would want to pay such a rich price. The answer, according to Seagate, is its desire to grow beyond manufacturing hard drives by having its services group provide a broad range of “solutions”, including archiving, back-up, recovery, and e-discovery. EVault, acquired last year for $185 million, is the backup and recovery part of that equation; MetaLINCS is the e-discovery component; and, say the analysts, don’t be surprised if an archiving acquisition is next.
Does Seagate’s entry into the e-discovery market make any sense? I don’t think so, and here’s why: there is a mismatch between Seagate/MetaLINCS and its target market. Seagate’s services offering will appeal most to mid-market companies which often outsource archiving, backup, and recovery. Seagate admitted as much when it announced the EVault deal. But the mid-market will be the last place to adopt e-discovery software like MetaLINCS; it is the Global 2000 who will move first, as they are the most sophisticated and in the greatest pain. For the limited amount of mid-market e-discovery business that is out there, Seagate/MetaLINCS will compete with every other service provider, from Kroll to Stratify to the hundreds of mom-and-pop shops across the country.
Net net: this acquisition is great for MetaLINCS, is small enough to be immaterial for Seagate, and will likely have no impact on the e-discovery market which will be won and lost in Global 2000 companies that are not interested in a Seagate/MetaLINCS service offering.
First ZANTAZ, then Stratify, and now MetaLINCS. It makes you wonder who will be next.
December 11th, 2007 at 9:47 pm
Hi Aarif,
Regarding valuation, I think Seagate may have got a good deal. Based on rough rule of thumb: Firm that has established itself with good technology in the early stages of an important new market, fetches between $75 million and $300 million.
Were I on the MetaLINCS end, I would have thought there are reasonable arguments for a lot more than $80M–assuming your $80M figure is correct.
More details on the argument at http://www.ferris.com/2007/12/11/terms-of-seagatemetalincs-transaction/.
BTW, thanks again for the nice nice, if rather pessimistic, book by that LA geographer. I enjoyed it a lot.
December 11th, 2007 at 10:12 pm
David,
There are a couple of different rules-of-thumb for valuing companies:
1. Revenue multiples: Seagate paid 8-16X current year revenue;
2. Comparable transactions: Is MetaLINCS worth 50% of Stratify or 20% of ZANTAZ?
Any way you look at it, MetaLINCS got a great price and I am sure their shareholders are very happy. Companies commanding the kind of prices you quote (e.g., $300m) would have to be a market leader, which MetaLINCS is not.
Glad you enjoyed the book, hope we cross paths again soon.
All the best,
Aaref
December 17th, 2007 at 4:16 pm
I know the MetaLINCS folks well, we were retained by Ramon to place some key personnel before the acqusition. To a person they are all quite pleased with the deal.
More important though is what is this book about the LA Geographer?
I am a geography freak and Antique map collector , so this all intrigues me even more than the MetaLINCS deal.
Feel free to contact me directly to talk cartography or business.
All the best!
mp
Michael Potters
CEO/Managing Partner
The Glenmont Group
http://www.glenmontgroup.com
michael.potters@glenmontgroup.com
June 11th, 2008 at 9:16 am
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