SD-WAN – A new wave of deals
On 18 September 2020, Ericsson announced the acquisition of US Idaho based Cradlepoint, a supplier of SD-WAN technology. The news comes hot in the trail of a similar transaction, HPE’s acquisition of Silver Peak on 13 July 2020. In this short article, Digiecon looks at the M&A momentum that has been gathering in the SD-WAN sector in recent years.
An industry segment that flourished overnight
The year was 2013, I had just completed an online course on Software Defined Networks from Georgia Tech and Google had just published a paper on their use of Software Defined Networking technology to optimise use of long-distance WAN links connecting Google’s data centres across the planet (see the seminal article here). I met with a colleague who had moved earlier in the year to an Intellectual Property investment advisory firm and he could not contain his excitement about the wave of new patent applications related to SD-WAN. He asked me when I thought this segment would be maturing. Without giving it much consideration, I estimated it would take three to five years. Even though my prediction was not too off the mark, value building in this segment happened faster than could predict.
SD-WAN started to appear more prominently in the radar screen of the large analyst houses in 2015. In a blog article from July 2015, Gartner refers to the technology as follows:
“SD-WAN is an emerging technology that offers several benefits compared with traditional, router-based WANs. Network decision makers can achieve cost savings, increased agility and simplification with an SD-WAN. This research defines SD-WAN and highlights its benefits, risks and alternatives.”
By 2016, IDC had estimated the worldwide SD-WAN Equipment and Services Revenues to had been worth less than $225 million in 2015. Fast forward, by April 2020, OMDIA estimated that SD-WAN revenue had reached $2 billion in 2019, a growth of 90% in relation to the previous year.
Key deals in the past five years
Gartner has been publishing its analysis of the enterprise WAN-Edge segment for a number of years. The table below shows the deals that took place using as a basis the list of companies covered in Gartner’s Competitive Landscape report from 2017.
| Company name | Acquired by | Announced value | Date |
| Barracuda Networks | Thoma Bravo LLC | $1.6 billion | February 2018 |
| CloudGenix | Palo Alto Networks | $420 million | March 2020 |
| CradlePoint | Ericsson | $1.1 billion | September 2020 |
| Ecessa | Communications Systems, Inc. | $400 million (estimate) | May 2020 |
| Infovista | APAX Partners | Undisclosed | May 2016 |
| Riverbed | Thoma Bravo LLC | $3.6 billion | April 2015 |
| Silver Peak | Hewlett Packard Enterprise | $925 million | July 2020 |
| Talari Networks | Oracle Corporation | Undisclosed | November 2018 |
| VeloCloud | VMWare | $449 million | December 2017 |
| Viptela | Cisco | $610 million | August 2017 |
Conclusion
A new wave of acquisitions in the SD-WAN segment is ongoing. This is in partly justified by the accelerated rate of organic revenue growth with sales of SD-WAN services and equipment. The new use cases for connectivity using 5G and fast speed satellite services, such as Starlink’s, should contribute to growth of the segment in the next five years. The home-working trend accentuated by the COVID pandemics will decisively reinforce growth as enterprise level security and manageability needs to be implemented at several million end-points. Expect a few more billion-mark USD deals to be announced in the SD-WAN segment in the next 12 to 18 months.
Sources: ucsd.edu, gartner.com, idc.com, omdia.com, crunchbase.com, wikipedia.com. Accessed [20/09/20]