NetApp Inc may itself become an acquisition target after rival EMC Corp foiled its effort to buy Data Domain Inc, a niche player in the $20 billion-a-year data storage equipment market.

Technology giant IBM is the most likely buyer, though Cisco Systems Inc, Dell Inc and Hewlett-Packard Co may also be interested in NetApp.

If the company were sold, it would go for between $8 billion and $10 billion, a premium to its current market value of about $6.4 billion, according to a West Coast banker who advises many of these companies and declined to be identified because the matter is private.

NetApp, whose revenue is forecast to grow 2 percent this year to $3.5 billion, had looked to Data Domain to accelerate sales growth and enhance its product line.

Potential buyers would use NetApp to do the same on a larger scale. The Sunnyvale, California, company is the biggest player in the market for mid-range storage equipment, an area that is growing faster than high-end equipment, which EMC and IBM dominate.

What better time to take advantage of a company like NetApp than in an economy like we have now? Perfect timing, said Joe Martins, managing director of Data Mobility Group, a research firm that follows the storage industry.

EMC, the No. 1 maker of data storage equipment, won the bidding for Data Domain on Wednesday with a $2.4 billion offer for the Santa Clara, California, company, whose sales are projected to soar 34 percent this year to $367 million, according to Reuters Estimates.

A spokeswoman for NetApp declined to comment on whether it is a target. Chief Executive Dan Warmenhoven said he would return to business as usual. We remain highly confident in our already-compelling strategic plan, market opportunities and competitive strengths, he said in a statement on Wednesday.

Analysts are unconvinced.

Missing out on purchasing these key strategic assets makes NetApp itself more likely to want to get sold, said Jefferies & Co analyst Bill Choi.


Analysts almost unanimously point to IBM as NetApp's most likely suitor. The computing giant resells NetApp equipment that competes with an EMC storage line.

Such a purchase would prevent NetApp from partnering with other IBM competitors, said Brian Babineau, an industry analyst with Enterprise Strategy Group, a market-research firm.

IBM has demonstrated the interest and financial resources to buy a large hardware maker. Earlier this year, it spent weeks attempting to buy Sun Microsystems Inc (JAVA.O) in talks that eventually collapsed. [ID:nN20381533]

HP is also considered a possible suitor. The No. 3 corporate storage equipment maker could make an offer as it looks to expand after hiring EMC storage business president David Donatelli in April. Donatelli is currently banned from working in HP's storage division following a successful EMC noncompetition lawsuit.

Dell is an outside possibility. The world's No. 2 personal computer maker currently resells EMC equipment and might choose to break with its partner with an offer for NetApp, according to the West Coast banker.

Dell is on a drive to diversify its business, looking to expand sales of corporate data center products, including storage equipment. Dell recently hired former IBM M&A chief David Johnson as it begins an aggressive acquisition drive.

I would assume that storage would be at, or near, the top of Dave Johnson's list, said the banker.


Another banker and several analysts said that one long-shot buyer would be Cisco, which recently started selling servers.

That could also hurt a close relationship with EMC.

Cisco Chief Executive John Chambers is a close friend of EMC CEO Joe Tucci and the two companies have partnerships in both storage equipment and virtualization software.

Officials with IBM, HP and Dell declined comment. A spokesman for Cisco could not be reached.

If a buyer does not emerge, NetApp will have to go it alone. That would raise pressure to do deals to fuel growth, possibly by snapping up smaller companies that offer similar technology to Data Domain, which allows businesses to delete duplicate data in storage gear, saving precious disk space.

Such companies include CommVault Systems Inc (CVLT.O), FalconStor Software Inc (FALC.O) and privately held Sepaton Inc. But it may take NetApp several months to make any offer as it regroups after its recent setback.

The company now must go back to the drawing board to figure out how to redeploy its acquisition resources, said Brigantine Advisors analyst Mark Kelleher.

(Reporting by Jim Finkle and Anupreeta Das. Editing by Jason Szep and Steve Orlofsky)