Xyratex Makes Entry-Level RAID Play

Xyratex on Thursday announced plans to acquire nStor Technologies for about $21.2 million. The boards of directors of both companies have approved the merger.

Xyratex said the acquisition will combine its expertise in high-volume, high-availability storage system enclosure design with nStor’s value-added RAID controller and storage software to produce highly scalable storage systems.

Under the terms of the agreement, Normandy Acquisition Corp., an indirect wholly owned subsidiary of Xyratex, will make a tender offer to purchase all of the outstanding shares of nStor’s common stock for $0.105 per share. The offer, expected to be launched on Aug. 3, is subject to certain conditions, including the tender of at least 88.1% of nStor’s shares of common stock. 37.5% of the shares have already been tendered.

“This proposed acquisition will strengthen Xyratex’s proven technology in the critical area of entry-level RAID controller technology,” Xyratex CEO Steve Barber said in a statement. “This emerging high-growth segment presents an exciting new opportunity for Xyratex. We believe that the combination of Xyratex’s existing intellectual property base with nStor’s Raid and software technology enables us to extend our leadership position and acquire new customers and positions us well for future growth.”

IDC estimates the entry-level RAID market — defined as all external storage systems priced under $15,000 — at $1.9 billion, and expects it to grow to $6.3 billion in 2008.

nStor’s offerings include dual active RAID controllers developed around a stable firmware core. Xyratex said a key element of its business strategy is to expand its technology base to incorporate more captive RAID controller technology into its product offerings.

Carlsbad, Calif.-based nStor became a publicly-traded company in 1997. Its stock peaked at nearly $7 a share in early 2000, and has spent most of the last four years in penny stock status. The company had $11.22 million in revenues in the 12 months ending March 31, losing 6 cents a share. It had $327,000 in cash on hand at the end of March.

UK-based Xyratex, which has been one of the few storage companies to brave the IPO waters in recent years, had $544 million in trailing twelve month sales as of May 31, according to Capital IQ.

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