F5 Networks nabs virtual ADC vendor NGINX for $670M

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F5 Networks expects its $670 million deal to buy NGINX will accelerate its multicloud strategy. (Pixabay)

F5 Networks announced Monday afternoon that it was buying virtual load balancing vendor NGINX for $670 million.

F5 plans to integrate its security solutions and cloud-native technologies with privately held NGINX's load balancing software and code in order to give it an entry point into the containerized application delivery controller (ADC) market. F5 will also use its global salesforce, channel infrastructure and partner ecosystem to better sell NGINX into the enterprise space that both companies serve.

"The ADC market has been fairly staid in the last few years with market leaders like F5 and Citrix," said Lee Doyle, principal analyst for Doyle Research, in an interview with FierceTelecom. "What has happened is there has been some startup challengers like Avi Networks and NGINX that have targeted essentially a different market.

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The traditional ADC vendors, such as F5 Networks and Citrix, provision small and large appliances in data centers "versus a DevOps, microservices, container per application ready software model" that NGINX and Avi serve. Doyle said the latter model was "probably at a significantly lower cost" as well.

"I think F5 has been slow moving into the DevOps world," Doyle said. "It's hard for established companies to disrupt their cash cow models, so this is a way for them to make sure they're not missing out on this new segment, which is a small part of the ADC market today, but obviously growing."

NGINX is an open source web server software code that is used by more than 409 million websites and over 63% of the world’s top 10,000 websites. NGINX is the company that created that open source software.

RELATED: F5 Networks adds carrier-grade NAT to NFV platform

F5 said NGINX's open source community was one of the most compelling reasons for buying the company. F5 said it would continue to support the open source community and code while also using it as a core part of its multicloud strategy going forward.

On the product side, NGINX sells its NGINX Plus and other software products to IT professionals in companies around the world.

“F5’s acquisition of NGINX strengthens our growth trajectory by accelerating our software and multicloud transformation,” F5 President and CEO François Locoh-Donou said in a statement. “By bringing F5’s world-class application security and rich application services portfolio for improving performance, availability, and management together with NGINX’s leading software application delivery and API management solutions, unparalleled credibility and brand recognition in the DevOps community, and massive open source user base, we bridge the divide between NetOps and DevOps with consistent application services across an enterprise’s multicloud environment.”

As a result of the deal, F5 Networks projected “mid-single-digit” revenue growth in fiscal 2020, compared with its previous forecast of “low-to-mid single-digit” growth.

Once the deal closes, F5 plans to keep the NGINX brand. NGINX CEO Gus Robertson, along with founders Igor Sysoev and Maxim Konovalov, will join F5 and will continue to lead the company. Sysoev first wrote the company's code in 2002.

Robertson will join F5’s senior management team, reporting to François Locoh-Donou. F5 will keep NGINX’s operations in San Francisco and other locations globally.

In a blog post on Monday, Robertson said the company had eight employees when he came onboard in 2012. NGINX, which counts Amazon Web Services, Google Cloud, IBM and Microsoft Azure as its partners, currently has 250 employees.

According to a report issued Monday by IHS Markit, virtual ADC appliances comprised 35% of the ADC revenue in the fourth quarter of last year. F5 Networks' revenue slipped 8% quarter over quarter during the same time frame, according to IHS Markit, but it still accounted for 47% of the ADC market share. Citrix followed F5 with 27%, while A10 came in third with 8%.

F5 Networks' shares were down 1.3% after hours, following a 2.6% gain to close the regular session at $162.09 on Monday. In Tuesday morning trading, F5's stock was down 4.9% to $149.90 per share.

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