F5 Networks announced plans to acquire NGINX.
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There are six factors that make sense to me.
Service Mesh: For me, the primary value is that F5 Networks gets a service mesh strategy that might be competitive. NGINX can be integrated into Istio in the forwarding plane and gives F5 a chance to survive the cloud networking transition. For me, this is the strategic motivation for the acquisition.
Enterprise Market Enterprise IT spends big money with F5 Networks. Adding NGINX should see revenue increase because F5 has better sales relationships and excution.
Open Source: F5 gains credibility as an open source contributor, something that it has lacked. Not to be underestimated as a tool for engaging certain customers, creating sales opportunities, and training people on products.
Cloud The sales pitch that this merger F5 Networks extends from cloud to host is solid and predictable strategy (see graphic). F5 gains more credibility that is software company and moving away from hardware (investors like credibility). Its an adjacent market of sorts but the customer are different, and one that other networking companies have taken. (For example, Cisco is moving into containers with GKS, and applications with App Dynamics)
Service and Support: NGINX has more experience in service and support of open source
Reduce CompetitionNGINX has been a strong competitor to F5 as a load balancer. Buying the competition for market share is a good contribution to value.
- Share price has fallen ~5% as analyst firms downgrade the stock highlighting a high risk strategy.
- F5 has motivation to make an acquisition at its current strategy is slowing and the transition to security/cloud isn’t driving growth shareholders expect.
- The pitch from NGINX is based on a continuity from application to network pipeline from a single company.
- NGINX will become a business unit inside F5.
- Both F5 and NGINX had been shopping themselves around for a couple of years without success. Are they overpriced or poor strategies in a changing market.
- Service mesh in Kubernetes is impacting both F5 and NGINX. Neither company is leading here and not well positioned to survive the transition alone. Can they do it together ?
- Cloud networking is complex and competitive. They will compete directly with VMware and Cisco SDN strategies for enterprise and the cloud companies on the other. Can they capture and hold some market share ?
- Network buyers are not applications developers, this could be a bridge to cross. NGINX can hold their hand.
Link: F5 Networks –4.9% as analysts eyeball Nginx purchase deal – F5 Networks, Inc. (NASDAQ:FFIV) | Seeking Alpha – https://seekingalpha.com/news/3441843-f5-networks-minus–4_9-percent-analysts-eyeball-nginx-purchase-deal
Link: NGINX to Join F5: Proud to Finish One Chapter and Excited to Start the Next – NGINX – https://www.nginx.com/blog/nginx-joins-f5/
Link: Service Mesh & Your Infrastructure | NGINX Learning – https://www.nginx.com/learn/service-mesh/
Link: F5 Acquires NGINX to Bridge NetOps & DevOps, Providing Customers with Consistent Application Services Across Every Environment – NGINX – https://www.nginx.com/press/f5-acquires-nginx-to-bridge-netops-and-devops/
Link: A Letter to F5 Employees from CEO François Locoh-Donou Announcing NGINX Acquisition – https://www.f5.com/company/blog/letter-to-f5-employees-from-ceo-francois-locoh-donou-announcing-nginx-acquisition
Link: F5 acquires NGINX for $670M to move into open-source, multi-cloud services | TechCrunch – https://techcrunch.com/2019/03/11/f5-acquires-nginx-for–670m-to-move-into-open-source-multi-cloud-services/