Sphere 3D Corp (ANY)

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Sphere 3D, Version 2.0 – The First Major Upgrade
Transaction summary: Sphere 3D announced the acquisition of its primary channel partner, Overland Storage (Nasdaq: OVRL) on May 16, 2014. The transaction, expected to close by September 30, 2014, involves Sphere 3D providing consideration in the form of the issuance of 9.4M shares on the basis of 0.510594 ANY shares per OVRL share. At the current ANY share price of C$9.80, the total value of consideration stands at C$92.6M, compared with OVRL total market capitalization of US$52.4M (C$57.0M) on the day prior to the announcement of the transaction. Holders of OVRL shares at the time of the transaction announcement will hold an estimated 28.8% of the new Sphere 3D entity. The combined entity will be listed under the symbol “ANY” on the TSX Venture and Nasdaq.
Acquisition target summary: Founded in 1980 and headquartered in San Diego, California, Overland Storage provides data management and protection solutions, primarily featuring tape and disk based storage hardware and services. On November 1, 2013, Overland announced an agreement to acquire privately held Tandberg Data of Dortmund, Germany, whose product set prominently features tape-based solutions, and in combination with whom Overland expanded the breadth of its geographic, manufacturing, and storage product footprints. Overland primarily sells to the small and midsize enterprise customer, with 48% of F2013 sales from US customers, 39% European (via Tandberg), and the 13% remainder from Asia and the rest of the world. The fiscal third quarter of 2014 ending March 31st was the first full quarter of Overland results to include Tandberg contribution. Based on FQ3/2014, Overland-Tandberg’s combined LQA revenue run rate is US$81.0M with FQ3/2014 gross margin of 32.5%, and EBITDA loss of US$5.0M.
Overland’s declining revenue in depth: Overland total revenue has declined (see Exhibit 1) in part due to declining tape-based storage demand (see Exhibit 2) in parallel with the broader decline in the external storage equipment market (see Exhibit 3). While the main driver of the decline in the overall storage market has been the commoditization of standalone hardware solutions (indeed, the same commoditization trend is affecting most standalone hardware segments, such as servers and switches), Overland has also been specifically subject to the trend of declining tape-based hardware demand caused by consumer demand shifting away from renewal/upgrade of tape-based systems.