F5 Networks announced an agreement to acquire cloud computing startup Volterra Inc. for $440 million in cash up front and $60 million in future consideration, taking the Seattle-based application security and delivery company’s total spending on acquisitions to more than $2 billion over the past two years.
Volterra, based in Santa Clara, Calif., offers a platform for edge computing across multiple clouds, in which processing takes place near the locations of sensors and data for reduced latency. The 125-person company, founded in 2017, came out of stealth mode in November 2019. Volterra raised $50 million in funding as an independent startup from investors including Khosla Ventures, Microsoft’s M12 venture arm, Samsung NEXT Ventures and ITOCHU Technology Ventures.
It’s part of a broader transformation of F5 Networks under CEO François Locoh-Donou in recent years. F5 has been moving aggressively into software and services, expanding beyond its traditional networking hardware business. The company announced a $670 million deal for Nginx, the company behind the widely-used web and application server technology, in March 2019; and completed its $1 billion purchase of Shape Security in January of this year.
F5 says it will use the Volterra technology as the basis for developing its own edge platform for large companies and service providers.
“The real power of this combination is how it transforms our competitive position,” Locoh-Donou said on a conference call with analysts and investors, saying the companies will work together to create what he called Edge 2.0, describing it as the first enterprise-ready edge platform focused on application security for large-scale deployments.
The announcement follows news that activist investor Elliott Management took a stake in F5. Citing unnamed people familiar with the matter, the Wall Street Journal reported that Elliott representatives had spoken to F5’s management about ways to boost its stock, and questioned the company’s acquisitions of Shape and Nginx. Those deals also contributed to a decline in F5’s operating profit margin, slipping to 30% as of the fourth quarter, from 36% previously.
Locoh-Donou said on the call that the deal is within the parameters given by the company for acquisitions at its November analyst meeting.
Announcing the Volterra deal, F5 said it expects the acquisition to accelerate its revenue growth, and raised its guidance. It also reiterated its plan to return $1 billion to shareholders over the next two years. The company previewed its financial results for its fiscal first quarter, ended Dec. 31, saying it expects revenue between $623 to $626 million, up 10%, driven by 70% software revenue growth.
F5 says Volterra founder and CEO Ankur Singla and other members of the startup’s leadership team will join F5, based in Santa Clara.
“When we started Volterra, multi-cloud and edge were still buzzwords and venture funding was still searching for tangible use cases,” Singla said in a post. “Fast forward three years and COVID-19 has dramatically changed the landscape — it has accelerated digitization of physical experiences and moved more of our day-to-day activities online. This is causing massive spikes in global Internet traffic while creating new attack vectors that impact the security and availability of our increasing set of daily apps.”
Haiyan Song, the newly-named F5 Networks executive vice president of security, said in a post that the companies “will create a new way to deliver more adaptive, dynamic experiences for our customers and help solve their most critical application challenges.”