Zix Acquires Leading Cloud-Based Backup and Recovery Provider CloudAlly


Zix Corporation (Zix), (Nasdaq: ZIXI), a leading provider of cloud email security, productivity and compliance solutions, has acquired privately-held CloudAlly Ltd., an industry leader in cloud-based data backup and recovery for business.

CloudAlly Overview

Founded in 2011, Israel based CloudAlly is a pioneer of enterprise-grade, software-as-a-service (SaaS) cloud backup and recovery solutions. The company offers a robust suite of award-winning, ISO 27001 certified and GDPR/HIPAA compliant solutions for Microsoft Office 365, Google Workspace (formerly G Suite), SharePoint, OneDrive, Salesforce, Box and Dropbox. CloudAlly is a channel-first provider, serving more than 5,000 customers, 250,000 users and supported by 600 Managed Service Provider (MSP) partners. For the fiscal year ending December 31, 2020, CloudAlly is projecting to generate on a standalone basis approximately $8.0 million in Annual Recurring Revenue (ARR).

Acquisition Summary and Rationale

  • CloudAlly expands Zix’s product suite into Microsoft Office 365 backup, filling growing demand from AppRiver’s MSP channel and Zix’s value-added reseller and direct channels.
  • Complementary and synergistic go-to-market motions and end markets with no overlap in the companies’ MSP partner bases.
  • CloudAlly enables Zix to enter the cloud backup and recovery market. MarketsandMarkets estimates the cloud backup market as a $1.3 billion market growing 25%.

Read More: Increased role of security in adopting cloud platforms

“Our acquisition of CloudAlly greatly enhances the Zix suite of solutions and will provide our partners and customers with another robust tool to drive further cloud adoption in their digital transformation journeys,” said David Wagner, Zix’s Chief Executive Officer. “With CloudAlly, we can now directly address the growing demand we’ve seen from partners, customers and prospects alike for an enterprise-grade cloud backup offering with a best-in-class solution. In fact, through a recent survey of our MSP partner base, we found that at least 45% confirmed they would purchase a backup solution from Zix if it became available. Cloud backup being our number one product adjacency, coupled with our proven success attaching additional products to our customer base, gives us a high level of confidence that we can leverage CloudAlly to become a greater business than just the sum of its parts. With CloudAlly, we can greatly enhance our Secure Cloud platform and also mitigate concerns around ransomware which has become a large industry focus. With this transaction completed, Zix will be better positioned for profitable growth, higher attach rates, scaled customer retention, and with the opportunity to capture a greater share of the multi-billion-dollar business communications market.”

Avinoam Katz, CloudAlly’s Chief Executive Officer, commented: “A comprehensive data protection plan is more important than ever as companies around the world are focusing on cybersecurity for their remote workforce. We’re extremely excited to join forces with Zix at this time and feel that our industry leading cloud backup service will be a complementary and valuable addition to their recently announced Secure Cloud Platform, an integrated suite of productivity, security and compliance services. This suite of services will give our rapidly growing combined customer and partner base around the world the tools they need to protect their critical cloud assets across an evolving distributed workforce.”

Financing Terms

In connection with the acquisition, Zix modified its existing senior secured term loan led by Truist Bank by adding additional borrowings of $35.0 million, bringing the total outstanding amount of the term loan to $212.2 million. The maturity date remains February 20, 2024 and carries the same interest rate (currently LIBOR plus 3.25%), which is subject to future step-downs as Zix’s leverage reduces. Additionally, Zix intends to use a portion of the additional term loan borrowing to repay all existing draws under its revolving credit facility, which will leave Zix with $25.0 million of capacity under its revolver.

Read More: Privileged Access Management helps prevent the cyberattacks cycle

On a pro forma basis, taking into effect the CloudAlly acquisition, as of December 31, 2020, Zix expects to have over $20.0 million of cash and cash equivalents and total long-term debt of $212.1 million.

“Beyond the direct benefits from an operational standpoint, our acquisition of CloudAlly should also be highly accretive from a financial perspective,” said Dave Rockvam, Zix’s Chief Financial Officer.” Its 100% subscription business and favorable profitability profile provide us with predictable adjusted EBITDA and cash flow to augment our already-robust financial base. We sought out CloudAlly because of the strong, born-in-the-cloud business they have today, but we believe that what it could be in the future represents an even more attractive ROI for Zix. Longer-term, our strong, unlevered free cash flow generation capabilities, aided by CloudAlly, have us on solid footing to comfortably service our debt obligations over time.”

Zix management will provide additional details on the CloudAlly acquisition and the company’s outlook on its third quarter 2020 conference call scheduled for today, Monday, November 9, 2020 at 5:00 p.m. Eastern time.

Transaction Advisors

Baker Botts and Gornitzky & Co. acted as legal advisors to Zix. Clairfield International acted as financial advisor and Gross Kleinhendler Hodak acted as legal advisor to CloudAlly.