HP Enterprise's SimpliVity Acquisition: What It Means For Nutanix

Hewlett Packard Enterprise Co (NYSE: HPE) has announced that it is acquiring Nutanix Inc (NASDAQ: NTNX)'s largest privately held competitor, SimpliVity, for $650 million.

JMP Securities’ John Lucia maintains a Market Outperform rating on Nutanix, with a price target of $38, following this announcement.

Acquisition Valuation

The analyst mentioned that the acquisition price is below SimpliVity’s prior funding round held in March 2015, which valued the company at more than $1 billion.

Given the lower-than-expected acquisition multiple, which is also a meaningful discount to the sales multiple assumed in the price target for Nutanix, Lucia believes any resulting weakness in Nutanix’s shares should be seen as a buying opportunity.

Key Differences

Although both Nutanix and SimpliVity compete in the hyper-converged infrastructure (HCI) market, the analyst believes Nutanix is fundamentally different for three key reasons:

1. Nutanix has been generating positive cash from operations, while SimpliVity has seen meaningful cash burn.
2. Lucia believes SimpliVity was in the process of a transition to software sales from hardware, which might have negatively impacted overall sales growth. On the other hand, Nutanix has been generating robust growth from both software and hardware sales.
3. The analyst pointed out that “SimpliVity may have been struggling to gain mind shares as a smaller-scale vendor in an increasingly competitive market, whereas our checks suggest Nutanix is considered a clear leader and, therefore is considered in most HCI opportunities.”

Lucia believes that these differences justify a meaningfully higher valuation for Nutanix.

At last check, shares of Nutanix were down 3.59 percent at $28.97, while Hewlett Packard Enterprise shares were up 0.48 percent at $22.80.