SoftLayer and ThePlanet merge

When I was told during HostingCon that private-equity firm GI Partners was acquiring a controlling interest in SoftLayer, my first question was, “Will it be merged with The Planet?” I got a coy answer about what would be logical, and now, it seems, the answer is indeed yes.

The two companies have an interesting mutual history that both might like to forget now — the founders of SoftLayer left The Planet a little over five years ago, leaving some amount of acrimony in their wake (expressed by a still-ongoing lawsuit that will presumably be put to rest now). Industry rumor back then said that the SoftLayer founders were essentially the movers and shakers at The Planet, and that their departure gutted significant talent from the company. By leaving, they missed the results of the GI Partners acquisition of The Planet, subsequent merger with EV1 Servers, and so forth. Management has changed almost entirely at The Planet in the intervening years, making the reconciliation of a merger completely reasonable, but it’s an interesting irony that SoftLayer’s CEO is going to get to come back to run the merged company. It’s also worth noting that the degree of common genesis ought to make this an easier merger than might otherwise be the case.

SoftLayer has been growing at an incredible pace, taking advantage of the same trend towards highly-automated, on-demand, self-managed infrastructure that Amazon has been riding high on. The Planet brings the rest of a hosting product portfolio to the game, so it’s an entirely sensible match. Also, for SoftLayer, the change in capitalization structure should be strongly beneficial, letting them get away from the equipment-leasing trap they’ve been in.

GI Partners has had a solid record of success in the data center space thus far — their other previous investments were Digital Realty Trust (wholesale data center leasing) and Telx (carrier hoteling and carrier-neutral colocation) — and the integration of The Planet and EV1 Servers clearly built a stronger company. I think merging fast-moving companies in the midst of a radically changing market is a dangerous, difficult proposition, since it risks loss of momentum, management confusion and distraction, and so forth, so this will be one to watch — it could build a much stronger merged company, or it could be disruptive to existing success.

There’s been a lot of M&A buzz around the hosting industry of late. Consolidation makes sense in the scale business of cloud, and there are also lots of companies seeking to move up-market with managed hosting offerings. Arguably, the thing that is preventing more M&A activity right now is that there simply aren’t great acquisition targets in the places where people are looking.

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Posted on August 5, 2010, in Industry and tagged , . Bookmark the permalink. Leave a comment.

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