|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
There are several IoTs: the Industrial Internet, Consumer Wearables, Wearables and Healthcare, Supply Chains, and the movement toward Smart Grids, Cities, Regions, and Nations. There are competing communications standards every step of the way, a bewildering array of sensors and devices, and an entire world of competing data analytics platforms. To some this appears to be chaos. In this power panel at @ThingsExpo, moderated by Conference Chair Roger Strukhoff, Bradley Holt, Developer Advocate a...
Jun. 25, 2016 05:00 PM EDT Reads: 615
Cognitive Computing is becoming the foundation for a new generation of solutions that have the potential to transform business. Unlike traditional approaches to building solutions, a cognitive computing approach allows the data to help determine the way applications are designed. This contrasts with conventional software development that begins with defining logic based on the current way a business operates. In her session at 18th Cloud Expo, Judith S. Hurwitz, President and CEO of Hurwitz & ...
Jun. 25, 2016 03:00 PM EDT Reads: 1,483
In his general session at 18th Cloud Expo, Lee Atchison, Principal Cloud Architect and Advocate at New Relic, discussed cloud as a ‘better data center’ and how it adds new capacity (faster) and improves application availability (redundancy). The cloud is a ‘Dynamic Tool for Dynamic Apps’ and resource allocation is an integral part of your application architecture, so use only the resources you need and allocate /de-allocate resources on the fly.
Jun. 25, 2016 02:15 PM EDT Reads: 990
A strange thing is happening along the way to the Internet of Things, namely far too many devices to work with and manage. It has become clear that we'll need much higher efficiency user experiences that can allow us to more easily and scalably work with the thousands of devices that will soon be in each of our lives. Enter the conversational interface revolution, combining bots we can literally talk with, gesture to, and even direct with our thoughts, with embedded artificial intelligence, wh...
Jun. 25, 2016 01:45 PM EDT Reads: 837
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...
Jun. 25, 2016 01:15 PM EDT Reads: 1,181
SYS-CON Events announced today that Bsquare has been named “Silver Sponsor” of SYS-CON's @ThingsExpo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. For more than two decades, Bsquare has helped its customers extract business value from a broad array of physical assets by making them intelligent, connecting them, and using the data they generate to optimize business processes.
Jun. 25, 2016 11:45 AM EDT Reads: 1,143
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...
Jun. 25, 2016 11:15 AM EDT Reads: 1,138
Machine Learning helps make complex systems more efficient. By applying advanced Machine Learning techniques such as Cognitive Fingerprinting, wind project operators can utilize these tools to learn from collected data, detect regular patterns, and optimize their own operations. In his session at 18th Cloud Expo, Stuart Gillen, Director of Business Development at SparkCognition, discussed how research has demonstrated the value of Machine Learning in delivering next generation analytics to imp...
Jun. 25, 2016 11:00 AM EDT Reads: 426
There is little doubt that Big Data solutions will have an increasing role in the Enterprise IT mainstream over time. Big Data at Cloud Expo - to be held November 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA - has announced its Call for Papers is open. Cloud computing is being adopted in one form or another by 94% of enterprises today. Tens of billions of new devices are being connected to The Internet of Things. And Big Data is driving this bus. An exponential increase is...
Jun. 25, 2016 11:00 AM EDT Reads: 1,254
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...
Jun. 25, 2016 10:30 AM EDT Reads: 1,204
Cloud computing is being adopted in one form or another by 94% of enterprises today. Tens of billions of new devices are being connected to The Internet of Things. And Big Data is driving this bus. An exponential increase is expected in the amount of information being processed, managed, analyzed, and acted upon by enterprise IT. This amazing is not part of some distant future - it is happening today. One report shows a 650% increase in enterprise data by 2020. Other estimates are even higher....
Jun. 25, 2016 10:15 AM EDT Reads: 1,204
The cloud market growth today is largely in public clouds. While there is a lot of spend in IT departments in virtualization, these aren’t yet translating into a true “cloud” experience within the enterprise. What is stopping the growth of the “private cloud” market? In his general session at 18th Cloud Expo, Nara Rajagopalan, CEO of Accelerite, explored the challenges in deploying, managing, and getting adoption for a private cloud within an enterprise. What are the key differences between wh...
Jun. 25, 2016 10:00 AM EDT Reads: 638
Internet of @ThingsExpo, taking place November 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA, is co-located with the 19th International Cloud Expo and will feature technical sessions from a rock star conference faculty and the leading industry players in the world and ThingsExpo Silicon Valley Call for Papers is now open.
Jun. 25, 2016 09:30 AM EDT Reads: 1,071
It is one thing to build single industrial IoT applications, but what will it take to build the Smart Cities and truly society changing applications of the future? The technology won’t be the problem, it will be the number of parties that need to work together and be aligned in their motivation to succeed. In his Day 2 Keynote at @ThingsExpo, Henrik Kenani Dahlgren, Portfolio Marketing Manager at Ericsson, discussed how to plan to cooperate, partner, and form lasting all-star teams to change t...
Jun. 25, 2016 07:45 AM EDT Reads: 1,018
Connected devices and the industrial internet are growing exponentially every year with Cisco expecting 50 billion devices to be in operation by 2020. In this period of growth, location-based insights are becoming invaluable to many businesses as they adopt new connected technologies. Knowing when and where these devices connect from is critical for a number of scenarios in supply chain management, disaster management, emergency response, M2M, location marketing and more. In his session at @Th...
Jun. 25, 2016 07:30 AM EDT Reads: 828
SYS-CON Events announced today that ReadyTalk, a leading provider of online conferencing and webinar services, has been named Vendor Presentation Sponsor 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. ReadyTalk delivers audio and web conferencing services that inspire collaboration and enable the Future of Work for today’s increasingly digital and mobile workforce. By combining intuitive, innovative tec...
Jun. 24, 2016 01:00 PM EDT Reads: 1,321
Amazon has gradually rolled out parts of its IoT offerings, but these are just the tip of the iceberg. In addition to optimizing their backend AWS offerings, Amazon is laying the ground work to be a major force in IoT - especially in the connected home and office. In his session at @ThingsExpo, Chris Kocher, founder and managing director of Grey Heron, explained how Amazon is extending its reach to become a major force in IoT by building on its dominant cloud IoT platform, its Dash Button strat...
Jun. 24, 2016 12:00 PM EDT Reads: 1,570
In his keynote at 18th Cloud Expo, Andrew Keys, Co-Founder of ConsenSys Enterprise, provided an overview of the evolution of the Internet and the Database and the future of their combination – the Blockchain. Andrew Keys is Co-Founder of ConsenSys Enterprise. He comes to ConsenSys Enterprise with capital markets, technology and entrepreneurial experience. Previously, he worked for UBS investment bank in equities analysis. Later, he was responsible for the creation and distribution of life sett...
Jun. 24, 2016 10:30 AM EDT Reads: 930
industrial company for a multi-year contract initially valued at over $4.0 million. In addition to DataV software, Bsquare will also provide comprehensive systems integration, support and maintenance services. DataV leverages advanced data analytics, predictive reasoning, data-driven diagnostics, and automated orchestration of remediation actions in order to improve asset uptime while reducing service and warranty costs.
Jun. 22, 2016 11:00 AM EDT Reads: 1,346
Vidyo, Inc., has joined the Alliance for Open Media. The Alliance for Open Media is a non-profit organization working to define and develop media technologies that address the need for an open standard for video compression and delivery over the web. As a member of the Alliance, Vidyo will collaborate with industry leaders in pursuit of an open and royalty-free AOMedia Video codec, AV1. Vidyo’s contributions to the organization will bring to bear its long history of expertise in codec technolo...
Jun. 19, 2016 12:45 PM EDT Reads: 1,237