Not long after Iron Mountain announced it had replaced its CEO, the company said it’s considering selling its archiving, e-discovery and online backup and recovery business to return to its roots in document and tape storage services.
“There’s no guarantee a deal will get done because we’re still early in the process, but we have good interest. And as you can imagine these processes take a matter of a few months, before we know it will unwind itself,” said Richard Reese, who abruptly took over as CEO on April 14.
Over the past decade, the company has focused on building out its own storage software offerings in support of cloud services, but in the future it plans to use third party applications to provide those services, said Reese, who replaced Bob Brennan, who had been CEO since February 2008.
Brennan has been reassigned as a director in the company.
If Iron Mountain sells its digital business, its online backup offering that includes LiveVault online server backup service and Connected desktop backup service would go with it.
Iron Mountain would retain its service power by third-party software, such as Digital Record Center for Images, an archive for digitized copies of physical records, as well as its Digital Record Center for Medical Images, a backup and archiving solution for MRIs, CT scans and other medical images.
It would also continue to offer physical media storage (such as tape and removable disks), and its core services for paper including secure shredding.
Iron Mountain entered the digital business 10 years ago to address a clear customer need, Reese said, but that business has not been profitable.
“We’ve got good margins. The problem is, we eat them all up in the redevelopment costs,” Reese told investors. “We were not successful at building an efficient development shop. Or said another way, it just cost us too much to continue to develop and redevelop our own technology.”
Another trend affecting Iron Mountain’s decision was the cloud, Reese said, which created an unwanted atmosphere of competition.
Reese said those cloud vendors want his company to use their software technology married with Iron Mountain’s distribution channels “to get access to markets deeper than they can get into.”
“It makes no sense for us to compete with [others] that are coming into the market. We’re going to play nice with them,” Reese said. “The way that people think about iPads and handheld devices and what that’s going to mean to data, and how it’s stored, and how it’s managed, there’s a lot of shifting coming … This will create clarity.”
Iron Mountain confirmed last week it is closing its Virtual File Store services, which is targeted at archival of inactive file data, as well as its Archive Service Platform, which allows software vendors to integrate the Iron Mountain API to leverage the company’s cloud architecture.
Arun Taneja, principal analyst with The Tenaja Group, said it was a minor shareholder in Iron Mountain, Elliott Management, that forced the change in strategic direction, calling for the company to go back to its roots.
“I believe it’s very hard for companies to do both sides of this,” Taneja said. “R&D is very different from being a service provider.”
“They know what do best. They create products, but they don’t want to be in service provider business,” Tenaja said. “I’m not surprised Iron Mountain figured out they we’re good at services but they just didn’t know how to build products.”
An Iron Mountain spokesman said that while Elliott Management spurred on the change, the company had been considering selling off its digital business since last fall.
Elliott Management owns about five per cent of Iron Mountain’s stock.
In the future, Iron Mountain will focus on its core digital and paper document archive and digital tape storage business, and it will use third party software to provide online storage services, the spokesman said.
For example, today Iron Mountain uses Hewlett-Packard‘s Medical Archiving Solution (MAS) software to manage radiological image storage. It also uses IBM‘s (NYSE: IBM) Content Manager OnDemand as its enterprise report management software offering customers access to digitally stored bills, statements, and invoices.
“Those are examples today of how we want to provide cloud services to customers moving forward,” the spokesman said. “We’re exploring alternatives for digital business. If this process results in a sale, I don’t know if we’ll continue to store customer’s data.”
The spokesman added that if the online backup services were sold off, Iron Mountain would like to continue offering those services as a reseller, and would like to continue storing customer’s data on site.
Iron Mountain has also committed to returning to investors about $2.2 billion through 2013, including about $1.2 billion of capital returned over the next 12 months through a combination of share repurchases and dividends.