Why Hewlett Packard Enterprise Wants to Buy SGI Now

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It is happening all over again. Hewlett-Packard is buying another old-school technology company. Silicon Graphics International Corp. (NASDAQ: SGI) was supposed to be braced for an earnings report. It reported, but the more important news is that Hewlett Packard Enterprise Co. (NYSE: HPE) is going to acquire Silicon Graphics.

Thursday’s M&A news shows that Hewlett Packard Enterprise (HPE) wants to extend its growth in big data analytics and in high performance computing. It might just be acquiring a lot of old legacy contracts for hardware and services as well.

HPE said that the move will bolster its $11 billion HPC segment, which is growing at an estimated 6% to 8% per year. The growth in data analytics is even more, and the move will expand verticals in government, life sciences and in R&D efforts.

HPE can easily afford this deal as it has a market cap of $36.2 billion. SGI is being acquired for $7.75 per share in cash, which is just a value of $275 million net of SGI’s cash and debt. SGI’s 52-week trading range is $3.88 to $7.79.

SGI’s products and services are used for high-performance computing and big data analytics. The company has focused on data-intensive computing for years. SGI has roughly 1,100 employees, and its revenues were $533 million in fiscal 2016. HPE’s revenues in 2015 were $52 billion.

Overall, HPE expects the acquisition to be neutral to earnings in the first full year following close and accretive thereafter. The merger is expected to close in the first quarter of HPE’s fiscal year 2017.

SGI shares closed up 8.7% at $5.98 on Thursday, and the stock was last seen up 28% at $7.65 in the after-hours reaction. Thursday’s statements were included in this release.

Antonio Neri, executive vice president and general manager, Enterprise Group, Hewlett Packard Enterprise said:

At HPE, we are focused on empowering data-driven organizations. SGI’s innovative technologies and services, including its best-in-class big data analytics and high performance computing solutions, complement HPE’s proven data center solutions designed to create business insight and accelerate time to value for customers.

Jorge Titinger, SGI’s CEO and president, said:

Our HPC and high performance data technologies and analytic capabilities, based on a 30+ year legacy of innovation, complement HPE’s industry-leading enterprise solutions. This combination addresses today’s complex business problems that require applying data analytics and tools to securely process vast amounts of data. The computing power that our solutions deliver can interpret this data to give customers quicker and more actionable insights. Together, HPE and SGI will offer one of the most comprehensive suites of solutions in the industry, which can be brought to market more effectively through HPE’s global reach.