Dell’s nifty deal to buy US data storage group, Compellent Technologies, must have restored its faith in the world of M&A, after its dismal ordeal earlier this year in one of the most excruciating bid battles in recent times, the contest with Hewlett-Packard for data storage group 3Par.

As Bloomberg reports, Dell agreed on Monday to buy Compellent for $960m — in a mercifully fairly straightforward deal.

Highlighting increasingly fierce competition in the data storage market, however, Dell agreed to up its price, paying Compellent investors $27.75 a share in cash, even though the companies said last week they were in exclusive talks for an acquisition at $27.50 a share. The purchase price is 3.3 per cent less than Compellent’s December 10 closing price, after the stock gained nearly 70 per cent in the past two months on speculation about a deal.

Such speculation, the FT noted, has become more common in storage stocks since Dell’s humiliating defeat at the hands of HP in August, over their frenzied bidding war for 3Par.

Now, says DealBook, investors are waiting for the next deal to drop in the data storage sector. While several private companies are still up for grabs, including Pillar Data Systems and BlueArc, only a few public companies are left, namely CommVault and NetApp.

The storage of steadily growing mountains of data — emails, spreadsheets, documents — is a highly lucrative market, as DealBook says, noting that in the third quarter alone, the overall US storage hardware market increased 18.5 per cent from a year ago to $7bn, according to research firm IDC.

The M&A frenzy prompts DealJournal to ask how much longer the data-storage party can last?

It cites Bank of America Merrill Lynch analysts who value Dell’s deal at about four times Compellent’s forward sale estimates, and see it as relatively inexpensive compared with other big storage acquisitions. HP’s deal for 3Par, by comparison, was a multiple of 10 times forward sales, while EMC’s purchase of Isilon was at eight to nine times forward sales.

Again, the question, says DealBook, is “whether we’ve reached a peak in the frenzy of computing companies grabbing up data storage companies, including those in the ever-hot “cloud computing” sector -– a catch-all term for storing files and services over the internet instead of on physical hardware located on site.”

Credit Agricole meanwhile says in a research note that valuations in the data storage sector are “clearly inflated given robust growth in data creation and the growing need for enterprises to more efficiently store and manage data”.

With the ink now dry on its agreed acquisition, Dell, for once, can perhaps feel pretty pleased with itself.

This entry was posted by Gwen Robinson on Tuesday, December 14th, 2010 at 10:07 and is filed under Capital markets, M&A. Tagged with 3Par, compellent technologies, Dell, Hewlett-Packard, HP. Edit this entry.