The network equipment market is experiencing some consolidation this week.

Publicly-traded Extreme Networks Inc. today announced plans to acquire rival Aerohive Networks Inc. for $272 million in cash, or $4.45 per share. The price represents a respectable a 39.5% premium to the Tuesday closing price of Aerohive’s stock.

Extreme competes in the same niche as Cisco Systems Inc. with a portfolio of data center switches, routers and management software, plus related products. Aerohive, in turn, also makes switches and routers but focuses mainly on selling enterprise Wi-Fi access points. More than 30,000 organizations use its hardware to provide wireless connectivity for their users.

Aerohive’s main competitive differentiator comes from its cloud-based administration services, which enable operations teams to centrally manage their companies’ networks through a web console. The provider was among the first in the industry to provide cloud-based management features. Last year, Aerohive marked another milestone by debuting the first family of enterprise-grade access points to use the latest 802.11ax wireless standard.

Buying the firm will enable Extreme to strengthen its Wi-Fi portfolio significantly. In the process, the company expects Aerohive’s cloud services to increase the percentage of its revenues that comes from subscriptions to about 30%. Looking at the Aerohive portfolio as a whole, Extreme estimates that the deal will add $1 billion to its total addressable market by 2022.

“We are now taking the next step to transform our business to add sustainable, subscription-oriented cloud-based solutions that will enable us to drive recurring revenue and improved cash flow generation,” Extreme chief executive and president Ed Meyercord said in a statement.

The acquisition may put Extreme in a better position to revitalize its share price, which is down about 30% from April as a result of the disappointing results the company posted for its third fiscal quarter. Extreme’s stock jumped more than 6% today on news of the acquisition.

The company expects to complete the deal by the end of September. Extreme projects that the process of bringing Aerohive into the fold will lead to a charge of between $14 million and $16 million in the quarter following the transaction’s completion. From there onward, it projects annual cost savings of $24 million to $27 million stemming from operational synergies. 

Extreme Networks posted a loss of $6.9 million on $250.9 million in revenue for the third quarter ended March 31.

Photo: Extreme Networks