Iron Mountain Swallows Mimosa for $112 Million

When it comes to making investments, Berkshire Hathaway's (BRK.A) Warren Buffett usually avoids technology. Yet he recently doubled his position, to 7 million shares, in Iron Mountain (IRM), a major provider of document and information management services.While Iron Mountain certainly offers low-tech services -- such as storing and shredding huge amounts of paper -- it has made a clear shift to digital applications. A key to the success of that transition has been acquisitions, and the latest one came Monday: the $112 million cash purchase of Mimosa Systems, a privately held firm that provides archiving services. The company will become a part of Iron Mountain's digital unit.

Aiming for a Bigger Piece of a $10.5 Billion Market

When you take a look at Iron Mountain, it becomes clear why Buffett likes the company. It has more than 140,000 customers across 39 countries. Its infrastructure protects and allows access to 425 million cubic feet of paper records, 10 million emails and 65 million computer backup tapes. Nice moat, huh?

Iron Mountain generates roughly $3 billion in revenues, most of which is recurring and stable. After all, who wants to switch their storage provider?

Moreover, Iron Mountain's business should continue to grow. Some of the key drivers pushing companies toward archiving include pervasive litigation, increased compliance and more security breaches. It is also getting tougher to store and track information because of the explosion of user-generated content (especially email).

Buying Best-of-Breed Providers

And of course, one of the more promising growth areas is digital archiving. Bear in mind that the estimated market size for the business is roughly $10.5 billion, which is certainly enough to move the needle for Iron Mountain.

To build a strong digital platform, Iron Mountain has been buying best-of-breed providers. For example, the company spent $158 million in 2007 for Stratify. That deal allowed Iron Mountain to provide cloud-based storage capabilities. The purchase was prescient: Cloud-computing has become a high-growth business, as shown by companies like (CRM) and NetSuite (N).

But despite the Stratify deal, there was still a hole in Iron Mountain's offerings: It lacked a strong on-premises product, and many customers still don't want to have their data stored outside their walls because of security concerns and issues of control.

With the acquisition of Mimosa, Iron Mountain will be able to provide such an on-premises solution for its customers, one that can work seamlessly with Microsoft (MSFT) products like Exchange and SharePoint. In fact, with the resources of Iron Mountain, Mimosa also has the opportunity to expand its market reach by extending its product to offerings from other major companies.

More Deals to Come?

In the first year after the Mimosa transaction, there should be a modest reduction in earnings for Iron Mountain. But profits are expected to increase afterward as the synergies kick in.

But the fact remains that Iron Mountain is continuing to move in on the turf on some of the giants of the digital-storage industry, such as Symantec (SYMC), CA (CA) and EMC (EMC). Even Dell (DELL) has a footprint in the market because of its MessageOne acquisition.

Then again, Iron Mountain is focused on a large market and can leverage its scale. The company will also likely make more acquisitions to fill out its offerings. All in all, these are the kinds of things that catch the interest of investors like Buffett.
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