On October 3, 2018, Cloudera and Hortonworks, the two leading providers of Hadoop for enterprises, entered into a definitive agreement to merge in an all-stock deal valued at 5.2bn. Under the terms of the agreement, Cloudera shareholders will own c.60% equity of the combined company and Hortonworks shareholders will own the remaining c.40%. Hortonworks shareholders will receive 1.305 common shares of Cloudera for each share of Hortonworks stock they own.
Both firms are headquartered in California and have similar roots – the cofounders of both companies were involved in inventing Hadoop at Yahoo. Cloudera, founded in 2008, focuses on data processing, analytics, and machine learning while Hortonworks, founded in 2011, focuses on data management, data warehousing, and training and support services around Hadoop architecture. The companies have been fierce competitors, and this merger will help them in stepping up the innovation in big data space, especially in supporting an end-to-end big data strategy in a hybrid and multi–cloud environment.
Cloudera and Hortonworks have been trading at 5.4x and 5.6x LTM revenues, respectively. Both are trading at a considerable discount as compared to their valuation at IPO of 10.5x and 22.3x, respectively. The combined company will have an enterprise value of c.$4.5bn, and a combined revenue of over $720m – representing a valuation of 6.25x revenues.
Cloudera and Hortonworks trade at significantly lower valuations than their cloud-native peers – Talend, Alteryx, and Tableau are trading at 11.2x, 19.9x, and 8.1x LTM revenues, respectively. Part of the reason for lower valuations is the increase in adoption of cloud by the enterprises. Consequently, Hadoop, which is useful to manage and process the data stored on-premises, has not been adopted at a scale that was predicted a few years ago.
The merger will help the companies to create an end–to–end big data management and analytics offering for the hybrid and multi-cloud environment, by utilizing their complementary strengths of data management and architecture (Hortonworks) and analytics and machine learning (Cloudera). The companies are aiming to deliver the industry’s first enterprise data cloud that can help in all stages from processing data from the Edge data centers to leveraging AI and generate insights.
Although both companies operate in a similar space, they have very little overlap in the clients they serve. Cloudera’s total customer base is c.1,300 and Hortonworks’ is c.1,400 – together the two companies will have more than 2,500 customers, with 120 of them having more than $1m annual recurring revenue. Also, the companies can exploit multiple cross-sell and up-sell opportunities and expect $125m in annual cost synergies.