Cloudera Goes Private On a Journey to Hybrid Cloud Leadership for Analytics, Picks up Two Acquisitions Along the Way

Data processing and analytics provider Cloudera is going private four years after its IPO to focus on cloud-driven modernization of Hadoop infrastructure. The company also announced the acquisition of Datacoral and Cazena before closing its own acquisition by New York-based private equity firms Clay, Dubilier & Rice, and KKR for $5.3 billion.

Enterprise cloud-data company Cloudera is making headlines this week as it made three important announcements yesterday, some bigger than others, as it charts a course for its future in the highly saturated market. The biggest announcement by far is that on Tuesday, the Palo Alto, CA-based company took a step back and went private only four years after it made its debut on the New York Stock Exchange (NYSE) with its initial public offering in April 2017.

But before it makes way for its own $5.3 billion acquisition by private equity firms Clayton, Dubilier & Rice, and KKR, Cloudera announced the acquisitions of DatacoralOpens a new window and CazenaOpens a new window to enhance its cloud-driven data analytics offerings. The company also announced its Q1 2021 financial resultsOpens a new window for the period ended April 20, 2021, wherein it continued its single-digit growth rate of the previous four quarters.

Cloudera made big waves in its heyday (if at all it is past that) when it was considered one of THE companies to watch out for in the cloud-data space. The company even attracted billionaire businessman, activist, and investor Carl IcahnOpens a new window who owns an 18% stake in Cloudera since mid-2019. But that was not before Cloudera’s merger with rival Hortonworks in January 2019 for its Hadoop-based data analytics capabilities.

Apparently, the luster has waned off in the succeeding years, right after when the company was supposed to gain new heights. The reason? A spurt in the growth of cloud-based services that Cloudera hasn’t been able to keep up with.

Cloudera’s Journey With Hadoop

Cloudera was founded in 2008 by three engineers Christophe Bisciglia, Amr Awadallah, and Jeff Hammerbacher, who hailed from Google, Yahoo! and Facebook, respectively, and later joined by Mike Olson, a former Oracle exec. Back then, on-premise delivery was the norm as well as the preferred way to leverage Big Data and analytics, or any other software services for that matter.

Fast forward a decade, wherein the company managed to attract multiple investments, including $740 million from Intel’s venture capital division, and achieve an ARR growth rate as high as 80% from its involvement in delivering Hadoop-derived data analytics. The company consistently managed to post solid numbers despite the arrival of cloud computing on the scene.

That’s because of Hadoop’s model, which is designed to enable large-scale distributed computing and is the basis of multiple distributed computing frameworks. But the advent of the cloud meant it was becoming outdated, fast. Compared to cloud, Hadoop’s model for data storage and analytics has a higher overhead for file storage, is not flexible enough for data processing, and the speed is subpar for real-time requirements. It also doesn’t support complex modern SQL and machine learning deployments.

Two of the biggest Hadoop players Cloudera and Hortonworks announced their ‘merger of equals’ in 2018, which was finalized in January 2019. However, much to Cloudera’s dismay, this is when Cloudera faced real turbulence from a market increasingly leaning toward cloud-based services like Simple Storage Service (S2) and Spark, which are cheap and scalable.

It can be theorized that Cloudera and Hortonworks merger, despite their strong performance preceding it, was done out of the heat faced by them from cloud players such as AWS, Microsoft (Azure), Databricks, Snowflake among others, and to keep their heads above water in an increasingly competitive market, especially with technology slowly becoming obsolete.

For instance, another company that emerged as a Hadoop-driven big data innovator MapR that achieved unicorn status since its founding in 2009, shut down in 2019Opens a new window , with assets sold off to HPE. And since Hortonworks went public in 2014, and Cloudera in 2017, both companies have underperformed when it comes to investor confidence. Cloudera’s shares, which debuted at $18.10 in April 2019, plunged by ~72% by June 2019 to $5.10 per share, its lowest ever.

Bob MugliaOpens a new window , CEO of Snowflake told Datanami in 2017Opens a new window , “I can’t find a happy Hadoop customer. It’s sort of as simple as that. It’s very clear to me, technologically, that it’s not the technology base the world will be built on going forward.”

Today’s Cloudera news is unsurprising. The company struggled to achieve strong growth against faster competitors with more consumable products. Hoping for the best for the employees.

— Nick Heudecker (@nheudecker) June 1, 2021Opens a new window

See Also: Keeping Up With the Cloud: What Companies Can Learn From Amazon’s Leadership Shift

Counterarguments to Hadoop’s Decline

The decline of companies using Hadoop for data processing and analytics doesn’t necessarily mean an end for the technology itself, argues Yassine FaiheOpens a new window , Senior Director of Solution Consulting at SingleStore, a distributed, relational, SQL database management system formerly known as MemSQL. 

He said Hadoop is simply going through the evolution cycle of any emerging technology and is currently passed through the trough of the disillusionment phase of Gartner’s Hype Cycle (refer image below).

“Very often, failures such as these are not caused by the technology per se, but by the way it is used. The hype prevented those adopters from differentiating between what they needed, what was promised, and what the technology could actually deliver. They eventually failed to get the expected value out of their investment, thus experiencing disillusionment. Hangover is the result of over-inflated expectations,” writesOpens a new window Faihe.

He adds, “The main reason that explains this failure is Hadoop’s inability to analyze data to produce insights at the required scale, with the needed degree of concurrency, and at speed. Storing data on Hadoop was easy, but getting back insights at speed and scale has been a common problem expressed by many practitioners. Thus, Hadoop has been given the nickname ‘data jail’.”

Faihe believes Hadoop is rising over the slope of enlightenment now and that open source technology needs to be re-architected. It will continue to be adopted by those who actually need it, and with realistic expectations instead of companies following the hype and implementing it needlessly.

Nevertheless, Cloudera certainly cannot sustain a high growth rate with a technology stack that is widely considered either outdated or whose adoption is snail-paced, which is why it is taking steps to modernize its position in the market.

See Also: The Future of Hadoop in a Cloud-Based World

Cloudera’s Acquisition of Datacoral and Cazena

Datacoral and CazenaOpens a new window , both of which are SaaS companies, are Cloudera’s attempts at modernizing its data analytic services before going private and after three consecutive quarters with single-digit revenue growth. Cloudera’s ARR growth for Q1 2021 stood at 7%.

Rob BeardenOpens a new window , CEO at Cloudera, saidOpens a new window , “The acquisitions will enable Cloudera to usher in a new era of low-code, no-code self-service by automating complex operations – enabling our customers to focus on getting value from their data rather than configuring, operating and managing the underlying infrastructure.”

Datacoral provides a cloud-based, low-code service to manually construct and manage Extract, Transform, and Load (ETL) processes in data pipelines while Cazena is a cloud-based platform leveraged to automate tasks in building and maintaining data lakes used in feeding data processing engines.

Datacoral was founded and is headed by Raghotham MurthyOpens a new window , a former Yahoo! Engineer who was a part of Facebook’s team that built its robust data infrastructure between 2008-2014. On the other hand, Cazena CEO Prat MogheOpens a new window was an SVP for strategy, products and marketing at IBM Netezza, IBM’s enterprise data infrastructure and intelligence subsidiary, before venturing out and founding Cazena.

Moghe said, “Extending the Cloudera platform to a SaaS delivery model fulfills Cazena’s vision of enabling businesses to easily speed up their time to insight by focusing on their data rather than operating the infrastructure necessary to manage it – we make CDP easier to operate and consume for all enterprises.”

Terms of the acquisition of either Datacoral or Cazena, expected to be completed by the end of Q2 2021 ending July 31, 2021, remain undisclosed.

What Does Cloudera Going Private Mean for Business?

Well, nothing and everything.

Cloudera is expected to continue to do what it is known for, i.e., deliver data-analytics services, but now with cloud at its center.

However, instead of relying on the nuances of operating a public company, Cloudera will be bankrolled by the two investors Clayton, Dubilier & Rice, and KKR to usher in the transition or modernization it seeks to protect its position.

“This transaction provides substantial and certain value to our shareholders while also accelerating Cloudera’s long-term path to hybrid cloud leadership for analytics that span the complete data lifecycle – from the Edge to AI,” Bearden said. “We believe that as a private company with the expertise and support of experienced investors such as CD&R and KKR, Cloudera will have the resources and flexibility to drive product-led growth and expand our addressable market opportunity.”

Jeff HawnOpens a new window , operating partner at Clayton, Dubilier & Rice will serve as the chairman of Cloudera after the closure of the deal, currently subject to the company’s shareholder approval. Cloudera’s $5.3 billion acquisition is $100 million bigger than its payment to Hortonworks for the merger.

The deal should come as good news for investors, especially Icahn, since Cloudera’s is going out of the public market at a 24% premium ($16 per share) on its last closing price of $12.86 per share on Friday, May 28, 2021. For perspective, Cloudera debuted at $18.10 per share at a ~20% premium over its $15 IPO price.

Cloudera talking about how $16 per share takeover is major premium to Friday price, which is true. But it’s only a dollar higher than its 2017 IPO price, and below where it closed on its first trading day and just about half of one of its private round prices.

— Dan Primack (@danprimack) June 1, 2021Opens a new window

The deal to acquireOpens a new window Cloudera is currently under a 30-day ‘go-shop’ period until July 1, 2021, wherein the company’s board can seek, evaluate, and weigh alternative acquisition proposals from third parties besides Clive, Dubilier & Rica, and KKR.

Some of the other big-name tech deals in recent months by private equity firms include Thoma Bravo’s acquisition of cybersecurity company Proofpoint for $12.3 billionOpens a new window , Symphony Technology Group’s purchase of McAfee’s enterprise security business for $4 billionOpens a new window , Veritas Capital’s $7.1 billion acquisition of Perspecta.

The biggest recent strategic takeovers include the $19.7 billion takeover of Nuance Communications by Microsoft for its healthcare ambitions and Salesforce’s $27.7 splurge on workplace communication platform Slack.

See Also: The Power of Data: How Organizations Can Improve Data Management in Cloud

Wrapping Up

Despite consistent growth since its pivot to the cloud after the merger with Hortonworks, Cloudera was on its way down primarily because of the unmanageable expectations set out at the onset. It proves how prudent it is to take into consideration the emergence of technologies that have the potential to usurp the present-day leaders.

Private equity buyouts can paint a negative picture when it comes to businesses but in this case, investors shouldn’t be too dejected because of the premium buyout. Although it is noteworthy that at $16 per share, Cloudera gained relatively no value since its IPO in 2017. 

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