Why Adaptiv Networks' Acquisition of Elfiq Makes Sense

When Martello bought Elfiq back at the end of 2017, the SD-WAN market was still in its infancy.  But, the deal never made a lot of sense.  Martello is in the network and application monitoring business, not connectivity.

Since then the market has exploded and many new players have entered the space.  The market has also seen several acquisitions that have propelled some very well-known brands into the space, like Cisco, VMware, and Oracle (News - Alert).  Most recently, HPE got into the game when it acquired Silver Peak earlier this month.  Naturally, that changes the competitive landscape and makes it harder for the smaller end of the market to compete. 

Adaptiv Networks CEO Bernard Breton (News - Alert) acknowledged as much, when noting that in any market, smaller players will always have a challenge casting a big enough shadow, regardless of how good their products are or how happy their customers may be. 

That challenge is what led to conversations between Breton and Martello CEO John Proctor, as the two Canadian vendors  looked for ways to help each other increase their market presence.  Ultimately, the discussions resulted in Adaptiv acquiring Elfiq.  In speaking with Breton, it became clear several factors made it a very appealing transaction.

Technology

The solution Elfiq has developed gives Adaptiv access to technology that was already on its roadmap and is complementary to its own portfolio.  Its cloud-native SD-WAN is ideally suited for branch deployments with very little complexity and quick deployment.  On the other hand, Elfiq’s Layer 2 edge solution supports data center and other very high bandwidth applications very well. 

Customer growth

The two customer bases have very little overlap, which isn’t surprising given the varying strengths of the two products.  In fact, Breton notes that, over the past several years, there have been several deals where both firms were part of initial discussions, but one or the other opted to not pursue the deal because it wasn’t the right fit.  With the two products, Adaptiv will have an expanded market to go after, including hybrid deployments that were out of reach for both businesses.  That said, Breton says that, while Adaptiv will now be able to serve slightly larger customers and those with more complex infrastructures, the acquisition doesn’t fundamentally change the company’s focus on the SMB market.

Geography

Both companies are based in Ottawa, Canada, making the transition much easier than with a cross-border acquisition.  But, more importantly, Adaptiv is in the process of expanding into Europe, a geographic strength for Elfiq, which will help Adaptiv accelerate its growth.  The two complementary partner communities will also support this activity, as most of Adaptiv’s partners are in North America, while Elfiq has a strong European presence – ironically with the exception of the UK, the only European market in which Adaptiv is already active. 

Expertise

With Elfiq’s expertise, Adaptiv will be able to strengthen its engineering team.  That includes bringing Elfiq co-founder Frederick Parent on as its CTO as the company eventually combines the two products.  That, however, will take time, and in the near term, there will be minimal changes with the focus being on ensuring both products, customer groups, and partner communities continue to receive the same high level of care and support they have come to expect.

With these factors in mind, it’s easy to see why Breton saw this as a logical move.  But, why now, while we’re still in the throes of a global pandemic?  For Breton, it was a case of wanting to take advantage of the slowdown.  While orders were still coming in, they certainly slowed somewhat, and the coronavirus obviously delayed field deployments. 

“I decided to not take a defensive stance and go on the offensive instead,” Breton said.  “Things were slowing down, so why not take advantage and accelerate our roadmap, do this acquisition, and come out of it as a much stronger team.”

To his credit, Breton has not cut hours or staffing at all during the pandemic.  Instead, it’s been full speed ahead.  Even with a COVID-driven deployment backlog, he says the company is now completely caught up, thanks largely to the simple deployment model and, as of now, the company is ahead of its revenue target even with the slowdown.  The inbound business during the pandemic, along with the increase in volume Breton expects the rest of the year comes down to businesses having to quickly adjust to their new situations, which makes SD-WAN an attractive option.

“The SD-WAN value proposition remains completely valid – potentially even more so during the coronavirus,” he adds.  “Business that have not start their digital transformation projects are in a world of pain and, if anything, this is accelerating the market, with companies moving from best effort internet to more controlled connectivity.”

What will the rest of the year bring?  Breton says, in addition to integrating the two businesses, it’s really about making a major push into the international market.  He also expects to get into the SASE market by the end of the year as well.  It’s a market – which combines cloud networking and security – that he believes Adaptiv and fewer than a dozen other vendors with a cloud-based networking product, are well suited to drive.  Others with a very heavy edge solution aren’t “SASE-compliant,” he says, which could well lead to additional acquisitions with any one of a number of cloud networking vendors, and possibly even some security vendors, as potential targets.

“If you don’t have cloud-based networking, how are you going to offer SASE?” he asks.

Ultimately, this transaction, though is about bringing together two smaller, highly complementary SD-WAN players.  The deal isn’t going to instantly push Adaptiv into a brand new market, but it will give it an expanded presence in its home North American market, as well as in Europe.  At a time when so many businesses are starting to understand they need better connectivity solutions, this may be the ideal time for this move.

For the latest information on SASE and how its bringing together security and the WAN, don’t miss the SASE Summer Summit Series, presented by SD-WAN Expo.  In addition, all the latest updates from the SD-WAN industry will be featured at SD-WAN Expo 2021, taking place at the brand new Miami Beach Convention Center, June 22-25, 2021.  Adaptiv Networks (News - Alert) is a Platinum sponsor of SD-WAN Expo 2021.