Data center software and services company Nutanix Inc. caused a bit of a stir today, announcing that Chief Executive Dheeraj Pandey will retire.

Pandey (pictured), who co-founded the company 11 years ago, said he will stay on until a successor has been found.

The company also announced that private equity firm Bain Capital will become its leading shareholder by purchasing $750 million in convertible senior notes. That transaction is expected to be completed next month.

Investors cheered the moves. Nutanix’s stock jumped 17% in after-hours trading.

Although both moves would be more typical of a struggling company, the announcements came as Nutanix reported strong fiscal fourth-quarter financial results that beat Wall Street’s expectations, underscoring the strength of the software-defined infrastructure and hyperconverged infrastructure markets it operates in.

In a conference call with reporters, Pandey said he’d been planning his retirement for some time, even before the COVID-19 pandemic began, though that raised a question as to why a new CEO hasn’t already been chosen. “It’s always best to leave on a high, and that high is here,” he said.

Pandey is credited with being one of the main innovators in hyperconverged infrastructure that integrates compute, storage and networking components. He helped found Nutanix back in 2009, and the company quickly emerged as a market leader in HCI alongside its main rival Dell Technologies Inc. and its subsidiary VMware Inc. Over the last 11 years, Pandey grew Nutanix into a $4.3 billion company that has helped revolutionize the way enterprises manage their information technology infrastructure.

Nutanix said that its board of directors has already began the search for a replacement, and that it will identify and interview candidates with the assistance of a leading global executive search firm.

Pandey told reporters that he’d decided to announce his retirement before a successor is in place because it’s important for the company to cast a “really wide net” in its search for a new leader. Doing so confidentially can be much more difficult, he explained.

“At the end of the day, we have great talent on the inside but we wanted to go out to external candidates just as much,” Pandey said. “It’s easier to reach them now than confidentially.”

For his part, Pandey said the COVID-19 pandemic, not to mention many years of building the company, prompted him to decide to spend more time with his family. “There’s no better time for a succession plan,” he said.

That Pandey’s departure came on the same day as the Bain investment is not a coincidence, Moor Insights & Strategy analyst Steve McDowell told SiliconANGLE. He said Bain’s effective takeover of Nutanix comes at a critical juncture for the HCI market.

“Software-defined infrastructure and HCI have taken over enterprise IT,” McDowell said. “This is a market that is still in the early stages of growth, but it is dominated by two companies, Nutanix and VMware. There is tremendous upside for Nutanix moving forward, but only if it continues to play smart.”

The main challenge for Nutanix now is that the combination of Dell and VMware brings a “staggering level of power and flexibility” to disrupt the HCI market with numerous “better together” hardware and software features, McDowell said. Still, he said there’s also a degree of nervousness from buyers around how Dell and VMware might cross-leverage some of their technologies.

“This is where Nutanix has the most opportunity, and where they’re already capitalizing,” McDowell said. “There isn’t an OEM in the industry, apart from Dell, which isn’t pushing hard to deliver Nutanix-based solutions.”

With Nutanix in such a strong position to take on Dell and VMware, McDowell said he believes Bain might be thinking the time is ripe for a change of leadership. Pandey did a fantastic job in growing Nutanix from nothing to being where it is today, he said. He also steered the company successfully through its transition from a seller of hardware to a cloud-based software company.

“But there are different types of CEOs for different stages of any company’s journey,” McDowell said. “My guess is that Bain believes this and simply wants fresh leadership that aligns to their vision of how Nutanix can blast into its next phase. It’s also worth noting that Bain’s investment gives them two board seats, ensuring a heightened level of control.”

It may also be that Bain and Pandey disagreed on Nutanix’s future direction, said Holger Mueller of Constellation Research Inc. “When a company is in the middle of a transformation and the CEO leaves, it usually is not a good sign,” he noted. “Either the direction of the transformation was not agreed on between the parties, or the CEO is not working fast enough toward the goal.”

Bain might also be nervous about the threat to its business that Nutanix faces from competitors in the public cloud infrastructure business. Stu Miniman, an analyst with SiliconANGLE sister market research firm Wikibon, said it’s possible the board believes Nutanix hasn’t moved to the cloud fast enough, especially when compared with VMware.

“This is the dual-edged challenge and threat of the public cloud,” Miniman said. “Nutanix has partnerships in the public cloud and it has expanded its SaaS portfolio. But the cloud ultimately is a large competitive threat.”

There could be another dimension to today’s announcements too. Often, large investments by private equity firms such as Bain are seen as a prelude to the company going private, or a potential acquisition. It’s not immediately clear who would be interesting in buying Nutanix, as any suitors would certainly be expected to pay a premium on the firm’s $4.3 billion market cap.

In the call with analysts, Pandey denied that Bain had plans to take Nutanix private or sell the company, saying that private investments in public equity, or PIPEs, are a common model nowadays. He cited previous examples of this kind of move, including Twitter Inc. and Expedia Group.

“Bain looks at this as an extremely transformational place in terms of the business model,” Pandey said.

That said, whenever a CEO departs and a private equity firm comes in, a major transition of some kind is almost guaranteed, analyst Patrick Moorhead told SiliconANGLE. “My instinct is that the company will trim down to get it ready for a sale. I believe there could be many takers spanning from classic enterprise infrastructure players that want more software stack capabilities to public cloud players that need more on-prem customers to drive hybrid capabilities.”

If someone does step up to buy Nutanix, it will be getting its hands on a potentially hot property. In its fourth quarter reported today, Nutanix posted a loss of 39 cents per share on revenue of $327.9 million. That easily beat expectations, with Wall Street having forecast a wider loss of 67 cents per share on revenue of just $319.9 million.

“Enterprises that have embraced HCI have had a far easier time than peers who haven’t,” McDowell said of Nutanix’s earnings. “The disasters of 2020 have only proven the value of a software-defined infrastructure, and both VMware and Nutanix are going to be the better for it.”

With reporting from Robert Hof

Photo: SiliconANGLE