* Compellent meets with Qatalyst Partners
* Seen as strong mid-market target -sources
* Compellent stock rises as much as 13 percent
* CEO declines to comment on hiring a bank
(Adds CEO declining to comment in fourth paragraph)
By Nadia Damouni
NEW YORK, Oct 26 Data storage provider
Compellent Technologies Inc CML.N has held preliminary
meetings with Qatalyst Partners and other investment banks to
advise it on options including a sale, said a source familiar
with the situation.
Qatalyst, a boutique firm run by technology banker Frank
Quattrone, advised competing data storage company 3Par Inc in
its sale to Hewlett-Packard (HPQ.N) in September and Data
Domain when EMC Corp EMC.N bought it in 2009.
Morgan Stanley (MS.N), which led Compellent's initial
public offering in 2007, is also among the banks that it has
talked to, said another source familiar with the situation.
Chief Executive Officer Philip Soran during a conference
call to discuss Compellent's third-quarter earnings on Tuesday
declined to comment on whether the company has hired a bank.
Morgan Stanley and Qatalyst declined to comment.
Compellent shares gained as much as 13 percent after
Reuters reported the meetings, then trimmed the initial gains.
Shares closed up 10.9 percent at $19.70.
The meetings are preliminary, said a second source who
declined to be identified because of the private nature of the
Qatalyst, which two other sources said is advising
Compellent rival Isilon Systems Inc ISLN.O, could shy away
from formally advising both companies at the same time because
of a potential conflict of interest.
Over the last few years, Minnesota-based Compellent's
revenue has grown rapidly, making it an attractive target,
another source familiar with the situation in recent days.
In July, Compellent reported record quarterly revenue of
$36.5 million, a 27 percent increase from a year ago.
SCARCITY OF ASSETS
Compellent, like 3Par, targets the storage area network
market using fiber channel technology which provides high-speed
connections between servers and storage devices. Compellent has
a smaller market cap of $569 million, which would make an
acquisition less expensive, said another source familiar with
Buyers are aware of the scarcity of assets in the high-end
storage area network market, a paucity that helped trigger a
public bidding war between Dell Inc DELL.O and HP over 3Par
in August, said the third source.
Other deals in recent years in the storage sector include
Dell's $1.4 billion acquisition of EqualLogic in 2008 and EMC
Corp's EMC.N takeover of Data Domain in 2009. EMC bested an
earlier bid from NetApp in the Data Domain deal. Data Domain
hired Qatalyst for that deal.
Potential suitors for Compellent could include Dell, HP,
IBM, Oracle ORCL.O, NetApp (NTAP.O), EMC and Cisco Systems
Inc (CSCO.O), said another source familiar with the situation.
Meanwhile, Qatalyst is working with Seattle-based storage
competitor Isilon, sources said, confirming earlier press
reports. The first source said that Isilon management likely
hired Qatalyst at the end of the 3Par process.
Isilon is trying to determine where it fits following the
3Par and Data Domain deals, said a fourth source familiar with
the situation. The company's platform is considered less
appealing than 3Par and Compellent as it offers what is known
as network-attached storage, or NAS, technology tailored to
media companies, said the sources.
An Isilon spokesperson declined to comment for the story.
There is a shortlist of bidders that would vie for and be
interested in Isilon, including EMC, Dell and Oracle, said the
sources. Though a deal could happen before the end of the year,
the sources also described Isilon -- which has a market value
of $1.9 billion and whose stock has more than doubled in the
last 6 months -- as expensive.
"The 3Par process put a spotlight on the mix of storage
companies," said a technology executive with knowledge of that
business's deals landscape.
He said the sector is waiting for the "dominoes to get
rolling," as tech giants, including EMC, Dell, IBM, Oracle and
Cisco look to add software assets to their data centers.
Although bankers and advisers expect more deals in the
software business, many of the best assets in the advanced
storage space have already traded, said another source familiar
with the situation.
In addition, with the 3Par and Data Domain deals resulting
in bidding wars, the source said no one wants to be a CEO who
makes pursues a company and loses. "It leaves a stigma on the
cocktail circuit," he said.
(Reporting by Nadia Damouni. Editing by Robert MacMillan)