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Veritas snaps up e-mail archiving player KVS

Veritas is forking out $225 million for KVS and will kill its own e-mail archiving product.

Veritas Software Corp. announced Tuesday that it will acquire e-mail archiving firm KVault Software Ltd. (KVS) for $225 million in cash, and will discontinue its own Data Lifecycle Manager (DLM) product in this market.

DLM users, of which there are about 150 as the product was only launched in January, will be migrated over to the KVS software in the coming months, while the KVS products will be integrated into Veritas' data protection suite. This includes NetBackup, Backup Exec, Storage Replicator and Command Central Services.

"We realized that the e-mail archiving market was growing very rapidly, and buying KVS enables us to leapfrog ahead," said a spokesman for Veritas. "DLM had no position in the market, whereas KVS is the leader." He added that the KVS software includes enhanced workflow and search capabilities, which DLM does not.

KVS has about 900 customers and has sold roughly 1.7 million licenses of its software, which allows policy-based archiving of e-mail held in Microsoft Exchange, Microsoft SharePoint, Microsoft Office and file systems. In addition, its archiving and indexing is said to ease the process of search and discovery in the event that the regulators come knocking. KVS users include Sony U.K.; the City of Oceanside, Calif.; and the Alberta Department of Energy.

Adam Holt, an analyst with JP Morgan, noted that the acquisition seems to represent "a strategic shift back toward the storage side of the ledger" for Veritas. The company has already spent more than $730 million on non-storage software companies, including Ejasent Inc., Invio Software Inc., Jareva Technologies Inc., Precise Software Solutions Ltd. and others.

Analysts say the latest acquisition is a shot across EMC's bow as KVS is the "No. 1 partner for the Centera platform," according to Mike Hedger, chief executive officer at KVS. During a conference call Tuesday morning, Hedger said about 25% of KVS' revenue comes from the EMC Centera system. He added that about 10% of its business is with Network Appliance Inc.'s NearStore product. The KVS software will still run on the Centera, but given the arch rivalry between Veritas and EMC, Holt said the dynamic of this relationship will be more difficult now. EMC was unavailable for comment when this story went to press.

According to International Data Corp., managing the ever-increasing volume of data is among the toughest challenges facing users, in terms of regulatory compliance and the cost of managing storage. The firm believes that e-mail traffic has tripled in the last five years. Gartner projects e-mail archiving to grow at a 57% compound growth rate through 2007.

Veritas expects to complete the acquisition by the end of September, at which time the KVS team of approximately 200 employees worldwide will operate as a separate unit under the leadership of the current KVS management team. Building on KVS' 2003 revenue of $23 million, Veritas expects the transaction to be accretive to the company's earnings within 12 to 18 months.

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