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Private equity firms interested in Brocade networking business

Several private equity firms are interested in buying the Brocade networking business, which would include the Ruckus wireless LAN portfolio.

Broadcom Ltd. is in talks with private equity firms interested in buying the vendor's Brocade networking business...

to create a company capable of meeting the wired and wireless needs of enterprises.

Broadcom has discussed a possible sale with several private equity firms, a source familiar with the talks said. The deal would include the sale of Brocade's IP portfolio of campus and data center switches, routers and networking software and its Ruckus wireless LAN products.

The most likely CEO of the new company would be Dan Rabinovitsj, COO of the Ruckus Wireless unit. Rabinovitsj manages the day-to-day operations of the business.

Broadcom declined to comment on the ongoing talks. "Broadcom has no update at this time," a spokeswoman said.

A sale to a private equity firm is not guaranteed. Broadcom has also been approached by technology vendors attracted to the networking assets Broadcom obtained last year in the $5.9 billion acquisition of Brocade Communications Systems Inc.

A possible suitor is Arris Group Inc., a network infrastructure vendor and partner of Ruckus Wireless, which Brocade acquired seven months before Broadcom bought it, industry observers said.

Brocade networking portfolio as stand-alone company

The Brocade networking business has the assets needed to operate as a separate company, said Krista Macomber, an analyst at Technology Business Research Inc. "Competing as a stand-alone entity would potentially enhance the agility at which Brocade can utilize these assets to tap quickly evolving opportunities."

Within the data center, for example, the company could enter the market for hyper-converged infrastructure systems (HCISs), Macomber said. Such systems have a software-centric architecture that tightly integrates computing, storage, networking and virtualization resources in a commodity hardware box. By 2020, 20% of the mission-critical applications currently running on traditional three-tier IT infrastructure will have moved to HCISs, according to Gartner.

Entering the HCIS market would require a Brocade-Ruckus company to cut deals with server and storage vendors, Macomber said. "Competing independently would likely offer greater alliance flexibility and the ability to react to market changes a bit more quickly."

In announcing the Brocade acquisition in November, Broadcom said it would only keep the company's Fibre Channel and storage area networking portfolio. Broadcom said it would sell the rest of the assets to avoid competing with customers who buy its silicon to power their IP switches. Those customers include Cisco and Juniper Networks.

To ease customer anxiety, Broadcom will likely announce a sale of the Brocade networking business soon, said Brad Casemore, an analyst at IDC. "Customers and channel partners want to see this matter resolved expeditiously, and Broadcom is also strongly motivated to find a buyer for the IP-networking assets."

Technology has been one of the most popular sectors of private-equity buyouts since 2013 when Silver Lake Partners joined Michael Dell in buying his namesake computer maker for $24.9 billion, The Wall Street Journal reported. In the first half of 2016, tech companies accounted for 46% of all U.S. buyouts, the highest level in 20 years.

Next Steps

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Does your organization prefer to buy its IP networking products from one or multiple vendors?
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Depends - need common support processes and scope across common operations - such as Data Center and Robo - but within those areas the core characteristics required vary - such as security and stability for Data Center vs cost for Robo.
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