Economies of ScaleIO: EMC Buys Israeli Virtual Storage Startup for Estimated $200-300 Million

In another outsized transaction for Israel's high-tech industry, the U.S. data-storage company EMC Corporation said Thursday it had agreed to acquire ScaleIO, a startup that makes server-side storage software.

Neither EMC nor ScaleIO would say how much the U.S. company is paying, except to say it would be entirely in cash. However, reports that leaked last month as the two sides were negotiating spoke about a price of between $200 million and $300 million.

The deal will be EMC's second acquisition in Israel in just over a year, after buying the flash storage firm XtremeIO for $430 million in May 2012. ScaleIO's Israel R&D team, based in Binyamina, will be merged into the R&D center set up after EMC bought XtremeIO.

"Flash now permeates every layer of information technology - in virtualized and non-virtualized environments," EMC CEO David Goulden said in a statement. "ScaleIO is a natural extension to our best-of-breed portfolio. It strengthens our product capabilities in the area of server-side storage and brings a world-class team that will undoubtedly enable us to innovate more quickly in the future."

ScaleIO CEO Boaz Palgi didn't add any further details, but, in a letter to staff posted on the company's website, expressed "great pride in the no-nonsense manner in which we have put ScaleIO on the map, with limited resources and in a highly competitive market."

"Not only have we engineered and brought to market a robust product, but we've also gained the confidence of our customers - and drawn attention from the industry’s largest players," he said.

ScaleIO, whose software helps businesses create a virtual pool of server-based storage by combining resources from solid-state drives, PCIe flash cards and traditional hard drives, will be folded into EMC's Flash Products Division.

The ScaleIO acquisition follows Google's high-profile purchase of the navigation apps startup Waze last month for more than $1 billion and a $400 million fund-raising from a group of blue chip investors by Mobileye, whose technology helps automobile drivers avoid collisions and other on-the-road mishaps.

ScaleIO was formed in 2011 by the same team that founded the startup Toplo, which was sold in 2006 to the American company NetApp, formerly Network Appliances. Initially self-funded, ScaleIO raised $12 million last December in its first fund-raising round from the U.S. venture capital funds Norwest Venture Partners, Greylock Partners and a group of private investors.

EMC has been a serial buyer of Israeli startups. Besides ScaleIO and XtremeIO, in 2006 it acquired the data storage companies Kashya, nLayers and ProActivity, for $153 million, $50 million and $30 million, respectively.