Another Big SD-WAN Deal: Palo Alto Buys CloudGenix

Mergersfish

By: R. Scott Raynovich

Palo Alto Networks (NYSE: PANW), a leading vendor of firewall and cloud security technology, today announced that it has agreed to acquire SD-WAN pioneer CloudGenix Inc. for a purchase price of approximately $420 million.

CloudGenix was one of the earlier startups in the SD-WAN market and has long been looking to climb in the category of companies that have already been acquired -- including fellow pioneers Viptela and VeloCloud. Now CloudGenix joins that elite club of SD-WAN deals targeting the high-growth enterprise edge market, which Futuriom has estimated at 33% annually. Cisco bought Viptela in 2017 for $610 million and VMware bought VeloCloud shortly after for $450 million.

This deal also reinforces the trend of security technology merging with enterprise branch connectivity. SD-WAN started as a simpler way to manage and orchestrate branch-office routing, and then over time added security features. Now, enterprise routing and security firewall technology are fully merging as firewall vendors such as Palo Alto and competitor Fortinet step up their SD-WAN game. Futuriom pointed to this trend many years ago before Gartner came up with a term -- Secure Access Services Edge (SASE) -- that is now being used by many security and networking vendors.

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At any rate -- it's a great result for CloudGenix, which has only about 200 employees and had raised a total of $100 million in financing, including a $65 million C Round last April. That's more than enough money to make all the founders and investors happy.

In an interesting twist, Palo Alto CEO and Chairman Nikesh Arora referenced the COVID-19 crisis in the beginning of a conference call on the deal, saying the emerging global health crisis and resultant social distancing trends have highlighted the need for remote security technology. While Arora said that Palo Alto was already in discussion with CloudGenix prior to the emergence of COVID-19, he said that the crisis has accelerated trends and awareness around the need for remote branch and home office security.

"We were in discussion prior to COVID," said Arora. "We looked at what would be the best from an integration perspective. The more we looked into the company the more we liked it. If I took a long-term view, the sooner the better."

Arora mentioned that there has been a pickup in inquiries about remote security technology, which may have added urgency to the deal. For example, Arora said the company is now handling security for 25 million remote users.

Arora and Palo Alto Chief Product Officer Lee Klarich said they looked at a wide range of SD-WAN players and concluded CloudGenix was the best match because of a collection of features, including cloud-based management and application-based policy routing capabilities. Palo Alto expects to integrate the CloudGenix technology into its Prisma Access technology and potentially its core firewall technology.