Analyst opinions appear to be driving the action, which is amusing. Wall Street isn't universally bearish on the deal. Here's a rundown of what we've seen so far:
- Jefferies & Co. downgraded the stock to "Underperform" on concerns that the OPNET acquisition reflects a "maturing" market for Riverbed's core WAN Optimization technology, which it views as a "structural negative" for the business.
- Robert W. Baird cut its price target from $28 to $24 because the timing and cost of the deal, when viewed through the lens of a premium valuation and a weak macroeconomic environment, "don't allow much room for error," Barron's reports.
- Sterne Agee was more sanguine, arguing the deal is a "net positive" that broadens the product line while deepening its relationships with lucrative Federal accounts.
- William Blair was most positive of all, saying the move "marks" Riverbed's transformation into the sort of multi-product company management has promised to build.
I'm with Sterne Agee and William Blair; this is a complementary arrangement. Whereas Riverbed's core Steelhead business is to optimize the delivery of data across a geographically diverse private network, OPNET is best known for sniffing out problems with application performance.
Investors should know this isn't a new area for Riverbed. In 2009, the company acquired Mazu Networks and its suite of network monitoring tools, which have since been renamed Cascade. OPNET is to blend with Cascade in what CEO Jerry Kennelly described as an immediate $250 million business.
But that's in the short term. Longer term, there's a much bigger idea at work here: Build a suite for monitoring, and in real-time optimizing, the performance of private networks carrying ever-increasing amounts of corporate data.
OPNET advances the thesis every bit as much as last month's partnership agreements with Juniper Networks (NYSE:JNPR) and VMware (NYSE:VMW). In each case, Riverbed is positioning itself as key to the increasingly important and complex business of sustaining high-speed data connections.
Nevertheless, the size and price of the OPNET deal had Baird and others balking even as they admitted the deal made sense. Ignore the noise. Buy on weakness and hold for the long term. If Riverbed's OPNET acquisition does indeed make sense, it will pay off every bit as much as management expects.