Imation Corp. has acquired a California-based data-storage provider for about $120 million in cash and stock in a deal aimed at boosting Imation's ability to supply the hardware and software for cloud computing.
The acquisition of privately held Nexsan Corp. aims to grow Imation's share of the storage and data security market, especially for small and medium-sized businesses and for enterprises whose operations are spread widely, Oakdale-based Imation said in a news release.
The cash-and-stock transaction included about $105 million in cash and 3.3 million Imation common shares, equivalent to about $15 million, the company said. Nexsan will continue to operate from its headquarters in Thousand Oaks, Calif., under existing management, Imation said.
"Imation's acquisition of Nexsan is an exciting next step in our strategic transformation, which includes investing in growth platforms in data storage and security solutions, where we are targeting markets with strong growth rates," said Imation CEO Mark Lucas in a statement.
Paul Zeller, Imation's chief financial officer, said in an interview that privately owned Nexsan had revenue of $82 million in 2011, and was close to breaking even on net earnings.
"They're a healthy, growing company. Nexsan is already generating positive cash flow, and we expect to enhance that," Zeller said. "Nexsan will improve our results in terms of top-line trajectory and profitability." Imation's 2011 revenues were $1.3 billion, with a net loss of $46.7 million.
Some analysts agree. Imation hasn't reported its 2012 financial results yet. But Mark Miller, an analyst at Noble Financial Capital Markets in Boca Raton, Fla., said the Nexsan acquisition should allow Imation "to cut their losses significantly for 2013." Miller predicted Imation will have a 2013 net loss in the range of 45 cents a share, compared to $1.24 a share in 2011.
Investor reaction was tepid. Despite Wednesday's broad post-fiscal cliff rally, Imation stock dropped 43 cents to close at $4.24.
Miller said some investors may be upset Imation is spending its cash reserves on an acquisition.
"The cash has been holding up Imation stock to a degree," Miller said. "And Imation is cutting their cash by 56 percent to do this. In addition, they're diluting the shares" by issuing more stock for the transaction.
Imation's Zeller said the purchase of Nexsan will reduce cash reserves from $186 million to about $81 million, and issuance of additional stock for the purchase will dilute the stock of existing shareholders by 8.4 percent.
Zeller agreed some shareholders see the company's cash reserves as the primary value driver for the stock, but said that would change as the company focuses on growing parts of the data-storage market.
"There are some shareholders who would prefer to see us return the cash to them through dividends or share buybacks, and they've seen us instead invest for growth," Zeller said. "So some shareholders won't be happy with us, while others will."
Nexsan sells disk storage systems to small to medium-sized companies, and has more than 33,000 systems installed at 11,000 customers worldwide, Imation said. But Nexsan does two-thirds of its business in the U.S., and will benefit from Imation's broader international presence, Zeller said.
Nexsan will add 200 employees to Imation's existing workforce of 1,100, which includes about 400 in the Twin Cities.
Imation has been working on a "strategic transformation" away from traditional data storage products that had been its mainstay into newer storage technologies. It also has been trying to cut costs.
"Nexsan is never going to be the only way we turn Imation around," Zeller said. "We have a broad strategy that includes adding scalable storage, optimizing our optical and magnetic tape storage businesses and looking at alternatives for our consumer audio and video business."
David Shaffer 612-673-7090 Steve Alexander 612-673-4553