Extreme M&A Drives Shares to New High

LAS VEGAS -- VMworld 2017 -- A funny thing happened on the way to consolidation in the Ethernet and wireless switching market -- Extreme Networks (EXTR) has hit its highest share price in 15 years, today closing at 11.26 (+1.08%).

Extreme management has raised investor interest with a crafty M&A plan to scoop up cheap pieces of the networking market, as other companies imploded. This year, it acquired the networking assets of Avaya, which went through bankruptcy.

Extreme is also in the process of buying Brocade's datacenter networking assets for $55 million in cash, consisting of $35 million at closing and $20 million in deferred payments, as well as performance-based payments to Broadcom, which acquired Brocade. That's quite a steal, considering that the business is expected to be accretive to cashflow and earnings for its fiscal year 2018 and could generate over $230 million in annualized revenue -- making the market multiple of the acquisition less than a quarter of the revenue.

By pulling all the pieces together, Extreme has gathered significant heft, with the Avaya Networking piece expected to have revenues of more than $200 million. Extreme's revenue run rate is now expected to be more than $1.2 billion.

That's not even all the deals. Last year, Extreme closed its acquisition of the wireless LAN business from Zebra Technology (ZBRA). This is a few years after Extreme merged with Enterasys Networks, the deal that kicked off a revival in Extreme as Wall Street took note of its strategy to focus on gaining market share with wireless networking assets.

Prasad Pammidimukkala, a senior director of product management with Extreme, said the deals mean that Extreme is now growing its wireless networking business at a faster rate than the overall market.

"We are gaining market share in wireless," said Pammidimukkala in an interview here at VMworld.

Pammidimukkala says a lot of the wireless assets are complementary, rather than coming from overlapping customers. "Sometimes in deals one plus one equals less than two; in this case we think it's 2-plus. We're growing both organically and inorganically."

The new 52-week high and 15-year high for Extreme's stock marks a long climb back. Extreme was one of the early pioneers in networking in the 1990s, as it raised more than $500 million in series of public offerings for the then-hot startup. Its share price rocketed as high as $100 a share during the technology bubble of the late 1990s, before crashing in 2001-2002 down to a low of about $1.65 in 2009. If you bought Extreme shares near their low in 2009, you would be up about 600%.