|By PR Newswire||
|November 19, 2012 09:30 AM EST||
NEW YORK, Nov. 19, 2012 /PRNewswire/ -- The following is a letter from Pergament Advisors, LLC to the Board of Directors of Overland Storage, Inc.
November 16, 2012
Overland Storage, Inc.
9112 Spectrum Center Boulevard
San Diego, CA 92123
Attn: Board of Directors
Board of Directors:
Pergament Advisors, LLC is the investment manager of Pergament Multi-Strategy Opportunities, LP ("Pergament") that owns a significant economic interest in Overland Storage, Inc. ("Overland" or the "Company"). Based on publicly available information Pergament is a top 10 shareholder.
Since Eric Kelly became CEO in 2009 the Company transitioned from an OEM strategy to a branded products company providing a full suite of storage systems including disk-based network attached storage (NAS), storage area network (SAN), tape-based back-up and archival solutions as well as data management software. An article this year stated, "Overland is the only company that now has scale-out NAS, scale-out SAN (Block), VTL, and tape." (1)
Excluding the earnings report released November 14th where management stated revenues were pushed-out by European challenges, we believe the Company reached an important inflection point of trough revenue a year ago when Overland began their new product launch. In October 2011 Overland launched its SnapServer DX product followed by SnapSAN and recently the new scale-out NAS solution SnapScale (Cloud). We applaud management's efforts building a higher margin branded product business with accelerating growth potential from the new baseline. Unfortunately, Overland is misunderstood and the stock is grossly undervalued.
The market resists giving value to Overland's successful turnaround and current high growth and margin expanding profile. At current market capitalization and adjusting for the six capital raises (2) during Eric Kelly's tenure as CEO there has actually been a loss in value. The Company raised approximately $45 million (2) meanwhile the current market capitalization is approximately $35 million. Considering the Company was trading at around a $10 million valuation when Eric Kelly became CEO in January 2009 there has been an implied loss of $20 million. This we do not applaud. However, we believe market misunderstanding has driven this value dislocation and, fortunately, this can be easily reversed.
Eric Kelly has experience buying and selling businesses with the most relevant transaction he led being the 2002 purchase of Snap Appliances from Quantum for $10 million. He then led the sale of that business approximately two years later to Adaptec for $100 million. We applaud that return profile and believe a similar scenario will occur with Overland if the Board takes the right actions.
Pergament requests that Overland immediately explore strategic alternatives to maximize shareholder value.
Overland is significantly undervalued and we believe the time has come to sell the Company to a strategic buyer. Considering the capital raised since 2009 represents more than the current market capitalization we believe the largest shareholders, especially those who were financing participants, support our view. Most of the financing participants were hedge funds and according to public filings and Bloomberg the ten largest hedge fund holders own approximately 67% of the common stock. Since the financing rounds ranged from $1.25 to $2.64 with a weighted average of $1.93 (2) all of these investors are currently under water and thus we believe would most likely support maximizing shareholder value now.
Our conviction is heightened by the last Annual Shareholder Meeting held on June 12, 2012 where the Chairman of the Board, Scott McClendon, maintained his position by only a slim margin (3). This occurred without any publicized shareholder hostility going into the meeting. Since Mr. McClendon was a past CEO of Overland and is the longest serving board member its clear shareholders desire change to the status quo. Since hedge funds own the majority of the Company we believe further change to the status quo, if demanded, could easily occur. It is also important to note that the Clinton Group ("Clinton"), a known multi-strategy fund with activist strategies, is the third largest shareholder with 12.5% and holds a board seat. After studying their publicly filed letters to various Board of Directors demanding value creation we believe Clinton's views are aligned with ours and all other shareholders.
Overland is worth at least $3.50 to an acquirer representing at least a 200% premium.
Based on 2012 calendar year revenue consensus of $60 million Overland currently trades at 0.5x, which is a significant discount to historical acquisition multiples in the storage sector. Storage acquisitions on average have been well in excess of 2x revenue with several well known transactions at 10x. A low end range of 2x-4x revenue represents an Overland valuation of $120 million to $240 million or fully diluted price per share of $3.50 to $6.00. At November 15th close of $1.20 the range represents premiums of 200% to 400%.
Revenue and cost synergies to a strategic buyer give credence to the higher end of the range. We believe cost synergies drive tremendous value to an acquirer. Overland's annual operating expenses are approximately $35 million, which is primarily represented as of June 30, 2012 by headcount of 79 in sales and marketing, 33 in research and development, and 25 finance/IT/HR (there are only 184 total full-time employees). To put that in perspective, a mid-size technology company in the storage space, NetApp, has headcount of approximately 5,500 in sales and marketing and 4,000 in research and development as per the 2012 10K Filing. We believe all of Overland's operating expenses would be redundant to a strategic acquirer increasing the attractiveness of Overland as a target. Based on 2012 calendar year revenue consensus of $60 million, 33.7% gross margin (most recently announced quarter), and $35 million of cost synergies (the acquirer absorbing zero operating expenses) the "new" Overland would generate $20 million of operating income equating to operating income multiple range of 6x-12x based on the acquisition revenue multiple range of 2x-4x. This is extremely attractive.
We, therefore, believe the high end valuation compares favorably to historical transactions. Adding to the conviction is that the analysis EXCLUDES the revenue synergies a larger sales force would realize AND the gross margin expansion a larger company's manufacturing and sourcing scale would drive. The analysis also EXCLUDES the value of the patent portfolio, which is potentially significant.
We applaud the Company's November 2011 settlement with Dell and IBM in its patent infringement lawsuit against BDT, IBM, and Dell. We also applaud the Company's announcement in June 2012 claiming infringement of one or both of the Overland patents ('766 and '581) involved in the International Trade Commission ("ITC") case against BDT. Those lawsuits name as defendents: Quantum, Spectra Logic, PivotStor, Qualstar, Tandberg, Tandberg Data, and Venture Corporation.
We believe the combination of the settlements with two of the largest global technology companies plus the ITC's recent determination of '766 and '581 patent validity that Overland possesses a strong case against all defendents in US District Court of Southern California. The breadth of the valid patents equates to significant monetization potential especially with patent '766 (partitioning) spanning the entire storage industry.
Even though Overland's current market capitalization provides no value to potential settlements and royalties, we believe all industry players would be interested in owning these patents. There is tremendous competitive value for a large strategic acquirer to own valid patents that span the storage industry. We believe the acquirer would have greater litigation experience and financial wherewithal to strongly pursue the pending cases and conceivably add additional defendants. It should also be clear that all current defendents could be buyers of the patents or interested in acquiring Overland. Any value gained by an acquirer from Overland's patent portfolio would increase the acquirer's return, which adds to our belief that the high end valuation compares favorably to historical transactions.
It should be clear that right now is a very compelling time for the Board of Directors to maximize shareholder value and that Overland is a very compelling target to many strategic acquirers. We request that Overland immediately explore strategic alternatives to maximize shareholder value.
We are available to discuss our views further at 212-994-6240.
Steven J. Brown
(1) Seeking Alpha. February 28, 2012
(2) As per Company news releases and public filings. $3.8 million announced October 30, 2009 at $2.10; $12.0 million announced February 22, 2010 at $2.64; $4.2 million announced November 12, 2010 at $1.25; $3.0 million announced December 21, 2010 for ownership interest in the BDT / IBM / DELL litigation; $15.2 million announced March 16, 2011 at $1.77; $6.4 million announced March 22, 2012 at $2.00
(3) 6,625,904 votes FOR and 6,187,528 votes WITHHOLD. As per Form 8-K dated June 18, 2012
CONTACT: Steven Brown 212-994-6240
SOURCE Pergament Advisors, LLC
Today we can collect lots and lots of performance data. We build beautiful dashboards and even have fancy query languages to access and transform the data. Still performance data is a secret language only a couple of people understand. The more business becomes digital the more stakeholders are interested in this data including how it relates to business. Some of these people have never used a monitoring tool before. They have a question on their mind like “How is my application doing” but no id...
Aug. 25, 2016 10:15 PM EDT Reads: 1,706
Identity is in everything and customers are looking to their providers to ensure the security of their identities, transactions and data. With the increased reliance on cloud-based services, service providers must build security and trust into their offerings, adding value to customers and improving the user experience. Making identity, security and privacy easy for customers provides a unique advantage over the competition.
Aug. 25, 2016 09:15 PM EDT Reads: 2,187
Is the ongoing quest for agility in the data center forcing you to evaluate how to be a part of infrastructure automation efforts? As organizations evolve toward bimodal IT operations, they are embracing new service delivery models and leveraging virtualization to increase infrastructure agility. Therefore, the network must evolve in parallel to become equally agile. Read this essential piece of Gartner research for recommendations on achieving greater agility.
Aug. 25, 2016 05:15 PM EDT Reads: 641
Smart Cities are here to stay, but for their promise to be delivered, the data they produce must not be put in new siloes. In his session at @ThingsExpo, Mathias Herberts, Co-founder and CTO of Cityzen Data, will deep dive into best practices that will ensure a successful smart city journey.
Aug. 25, 2016 03:30 PM EDT Reads: 1,490
DevOps at Cloud Expo, taking place Nov 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA, is co-located with 19th Cloud Expo and will feature technical sessions from a rock star conference faculty and the leading industry players in the world. The widespread success of cloud computing is driving the DevOps revolution in enterprise IT. Now as never before, development teams must communicate and collaborate in a dynamic, 24/7/365 environment. There is no time to wait for long dev...
Aug. 25, 2016 03:15 PM EDT Reads: 2,215
Internet of @ThingsExpo, taking place November 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA, is co-located with 19th Cloud Expo and will feature technical sessions from a rock star conference faculty and the leading industry players in the world. The Internet of Things (IoT) is the most profound change in personal and enterprise IT since the creation of the Worldwide Web more than 20 years ago. All major researchers estimate there will be tens of billions devices - comp...
Aug. 25, 2016 02:00 PM EDT Reads: 3,546
SYS-CON Events announced today that Venafi, the Immune System for the Internet™ and the leading provider of Next Generation Trust Protection, will exhibit at @DevOpsSummit at 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. Venafi is the Immune System for the Internet™ that protects the foundation of all cybersecurity – cryptographic keys and digital certificates – so they can’t be misused by bad guys in attacks...
Aug. 25, 2016 01:00 PM EDT Reads: 2,596
The 19th International Cloud Expo has announced that its Call for Papers is open. Cloud Expo, to be held November 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA, brings together Cloud Computing, Big Data, Internet of Things, DevOps, Digital Transformation, Microservices and WebRTC to one location. With cloud computing driving a higher percentage of enterprise IT budgets every year, it becomes increasingly important to plant your flag in this fast-expanding business opportuni...
Aug. 25, 2016 01:00 PM EDT Reads: 3,892
SYS-CON Events announced today Telecom Reseller has been named “Media Sponsor” of SYS-CON's 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. Telecom Reseller reports on Unified Communications, UCaaS, BPaaS for enterprise and SMBs. They report extensively on both customer premises based solutions such as IP-PBX as well as cloud based and hosted platforms.
Aug. 25, 2016 09:00 AM EDT Reads: 583
For basic one-to-one voice or video calling solutions, WebRTC has proven to be a very powerful technology. Although WebRTC’s core functionality is to provide secure, real-time p2p media streaming, leveraging native platform features and server-side components brings up new communication capabilities for web and native mobile applications, allowing for advanced multi-user use cases such as video broadcasting, conferencing, and media recording.
Aug. 25, 2016 08:45 AM EDT Reads: 2,116
Data is the fuel that drives the machine learning algorithmic engines and ultimately provides the business value. In his session at Cloud Expo, Ed Featherston, a director and senior enterprise architect at Collaborative Consulting, will discuss the key considerations around quality, volume, timeliness, and pedigree that must be dealt with in order to properly fuel that engine.
Aug. 25, 2016 08:30 AM EDT Reads: 1,758
Pulzze Systems was happy to participate in such a premier event and thankful to be receiving the winning investment and global network support from G-Startup Worldwide. It is an exciting time for Pulzze to showcase the effectiveness of innovative technologies and enable them to make the world smarter and better. The reputable contest is held to identify promising startups around the globe that are assured to change the world through their innovative products and disruptive technologies. There w...
Aug. 25, 2016 08:30 AM EDT Reads: 489
Akana has announced the availability of version 8 of its API Management solution. The Akana Platform provides an end-to-end API Management solution for designing, implementing, securing, managing, monitoring, and publishing APIs. It is available as a SaaS platform, on-premises, and as a hybrid deployment. Version 8 introduces a lot of new functionality, all aimed at offering customers the richest API Management capabilities in a way that is easier than ever for API and app developers to use.
Aug. 25, 2016 06:00 AM EDT Reads: 1,443
Personalization has long been the holy grail of marketing. Simply stated, communicate the most relevant offer to the right person and you will increase sales. To achieve this, you must understand the individual. Consequently, digital marketers developed many ways to gather and leverage customer information to deliver targeted experiences. In his session at @ThingsExpo, Lou Casal, Founder and Principal Consultant at Practicala, discussed how the Internet of Things (IoT) has accelerated our abil...
Aug. 25, 2016 02:00 AM EDT Reads: 1,920
SYS-CON Events announced today that 910Telecom will exhibit at the 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. Housed in the classic Denver Gas & Electric Building, 910 15th St., 910Telecom is a carrier-neutral telecom hotel located in the heart of Denver. Adjacent to CenturyLink, AT&T, and Denver Main, 910Telecom offers connectivity to all major carriers, Internet service providers, Internet backbones and ...
Aug. 25, 2016 02:00 AM EDT Reads: 1,813
With so much going on in this space you could be forgiven for thinking you were always working with yesterday’s technologies. So much change, so quickly. What do you do if you have to build a solution from the ground up that is expected to live in the field for at least 5-10 years? This is the challenge we faced when we looked to refresh our existing 10-year-old custom hardware stack to measure the fullness of trash cans and compactors.
Aug. 25, 2016 01:15 AM EDT Reads: 1,648
The emerging Internet of Everything creates tremendous new opportunities for customer engagement and business model innovation. However, enterprises must overcome a number of critical challenges to bring these new solutions to market. In his session at @ThingsExpo, Michael Martin, CTO/CIO at nfrastructure, outlined these key challenges and recommended approaches for overcoming them to achieve speed and agility in the design, development and implementation of Internet of Everything solutions wi...
Aug. 25, 2016 12:45 AM EDT Reads: 1,930
19th Cloud Expo, taking place November 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA, will feature technical sessions from a rock star conference faculty and the leading industry players in the world. Cloud computing is now being embraced by a majority of enterprises of all sizes. Yesterday's debate about public vs. private has transformed into the reality of hybrid cloud: a recent survey shows that 74% of enterprises have a hybrid cloud strategy. Meanwhile, 94% of enterpri...
Aug. 25, 2016 12:00 AM EDT Reads: 3,000
In today's uber-connected, consumer-centric, cloud-enabled, insights-driven, multi-device, global world, the focus of solutions has shifted from the product that is sold to the person who is buying the product or service. Enterprises have rebranded their business around the consumers of their products. The buyer is the person and the focus is not on the offering. The person is connected through multiple devices, wearables, at home, on the road, and in multiple locations, sometimes simultaneously...
Aug. 24, 2016 09:45 AM EDT Reads: 2,280
Amazon has gradually rolled out parts of its IoT offerings in the last year, but these are just the tip of the iceberg. In addition to optimizing their back-end AWS offerings, Amazon is laying the ground work to be a major force in IoT – especially in the connected home and office. Amazon is extending its reach by building on its dominant Cloud IoT platform, its Dash Button strategy, recently announced Replenishment Services, the Echo/Alexa voice recognition control platform, the 6-7 strategic...
Aug. 24, 2016 04:30 AM EDT Reads: 2,240