IPOs 2021: Analysis of SUSE’s NeuVector Acquisition

The global Linux enterprise operating systems, container management and storage, and Edge, is expected to grow at 17% CAGR to reach $24 billion market by 2024. SUSE, a leading provider in this market, went public last year and competes with some big names in the tech industry.

SUSE’s Offerings

Founded in 1992 by Roland Dyroff and Thomas Fehr, Nuremberg-based SUSE develops and sells Linux-based products to its customers. The company specializes in Enterprise Linux, Kubernetes Management, and Edge solutions, and works with partners and communities to empower its customers to innovate from everywhere. SUSE allows customers to tackle innovation challenges and evolve their strategy and solutions.

SUSE offers two open-source product categories – SUSE Linux Enterprise products, which are its core Linux operating system offerings, and the SUSE Rancher product family, which includes its container management platform services. Both these product families offer support for desktop, cloud, data center, and Edge computing environments.

SUSE has become a leader in innovative, reliable, and enterprise-grade open source solutions. It boasts of more than 60% of the Fortune 500 as its customers. All of its products are developed using an open-source innovation model. The open-source community, consisting of millions of developers – including SUSE employees – contributes to open source, resulting in innovation, software enhancements, and bug fixes. SUSE leverages code and software that comes from the upstream community, and its engineers develop and refine this code to make it more efficient and ready for deployment to enterprise customers. SUSE is proud of its open-source ethos that creates a flywheel fed by valuable contributions from the community, and, in turn, helps it to build improved products that benefit both its customers and the open-source community.

SUSE’s Financials

SUSE reported revenues of $447 million for the year ended October 2020 and a net loss of $51.6 million.

It recently reported its first-quarter results and announced revenues of $155 million, growing 17%, and an EPS of $0.20.

By segment, revenues from its Core solutions grew 10% to $130.2 million and from emerging solutions grew 60% to $24.8 million.

For the trailing twelve months, SUSE reported $596.8 million in sales, growing 15% over the year, and an adjusted EBITDA of $203.7 million, growing 4% over the year. Its core Linux business grew 10% and accounted for $517.4 million in sales in the trailing twelve months.

SUSE’s Acquisition

Recently, SUSE announced the acquisition of NeuVector, a leader in full lifecycle container security, for $130 million. NeuVector was founded in 2015 by Fei Huang and Gary Duan and delivers end-to-end security, from DevOps pipeline vulnerability protection to automated security and compliance in production. The acquisition will allow SUSE to build on its promise to deliver capabilities needed by its customers. By integrating NeuVector into SUSE Rancher, it will be able to deliver an enterprise-grade end-to-end container security solution. NeuVector will strengthen SUSE’s secure software value proposition to existing and new SUSE Rancher customers, providing access to a completely integrated container security solution, allowing them to protect deployments against malicious activity by attackers. SUSE Rancher will also be able to continue to meet risk management requirements in regulated industries including financial services, healthcare, and government.

Prior to the acquisition, NeuVector raised $19 million in five rounds of funding held by Fusion Fund, SV Tech Ventures, Hummer Winbald Venture Partners, Wisemont Capital, and TSVC. Its most recent round was held in October 2020 where it raised $10 million. NeuVector’s financials prior to the acquisition are not disclosed.

SUSE operates in a crowded market and competes with players with big pockets. Red Hat, Microsoft, VMWare, Oracle, and Citrix are some of the tech giants that it has to compete with.

Prior to going public, SUSE has gone through a series of acquisitions itself. It was acquired by Novell in 2003, Attachmate in 2010, Micro Focus in 2014, and EQT Partners, a Swedish private equity firm, in 2018. EQT had acquired SUSE for $2.5 billion before it took it public last year. SUSE listed on Frankfurt Stock Exchange in Germany, raising $1.35 billion with a market capitalization of $6.1 billion. It is currently trading at $27.54 with a market capitalization of $4.7 billion.

Disclosure: All investors should make their own assessments based on their own research, informed interpretations, and risk appetite. This article expresses my own opinions based on my own research of product-market fit, channel execution, and other factors. My primary interest is in product strategy. While this may have bearing on stock movements, my writings tend to focus on long-term implications. The information presented is illustrative and educational, but should not be regarded as a complete analysis nor recommendation to buy or sell the securities mentioned herein. I am not a registered investment adviser and I am not receiving compensation for this article.

Photo Credit: Steven DuBois/ Flickr

This segment is a part in the series : IPOs 2021