Container craze could spark monitoring M&A 

Contact: Nancy Gohring

Even though it’s early still for the use of containers and microservices, we’ve seen a handful of startups enter the market with technology designed specifically for the monitoring needs of those environments. Established vendors also are developing techniques for this segment, yet adoption of these technologies is moving fast enough that broader application monitoring companies may decide to buy a specialist to speed time to market.

In our 2016 Voice of the Enterprise (VotE): Cloud Transformation, Budgets and Outlook survey, 26.7% of respondents said they were either in broad or initial implementations of containers in production environments. A further 11.3% said they were using containers in test and development environments, 21.4% said they were employing containers in trials, and 40.7% said they were evaluating containers.

Emerging vendors such as Sysdig, Outlyer and Instana are developing new approaches that aim to solve the particular challenges of monitoring applications built using containers and microservices, especially the challenges that emerge in dynamic environments. Most of these startups are quite small, with relatively few customers, indicating that they still have work to do to prove their worth. However, we believe both legacy and newer-breed providers looking to quickly add capabilities around this fast-growing use case could benefit from a pairing with one of the new entrants, allowing them to start serving users now.

Legacy vendors specifically, which have been eclipsed in recent years by more modern players, may have the most to gain from such an acquisition. Subscribers to 451 Research’s Market Insight Service can access a detailed report that analyzes the potential acquisitions of application monitoring companies built for container environments.

Ivanti keeps rolling along, adds RES Software

Contact: John Abbott, Brenon Daly

The rollup continues at Ivanti, the PE-backed company that itself is a bit of a rollup, created from the combination of LANDESK and HEAT Software in January. In its second acquisition under its new name, the Clearlake Capital portfolio company reached for user workspace management and IT automation firm RES Software. Although terms weren’t disclosed, subscribers to 451 Research’s M&A KnowledgeBase can see our deal record and proprietary estimate of the price and valuation in this transaction.

For years, RES fought it out in the virtual desktop management space with direct rival AppSense, while LANDESK, once part of Intel, tried to hold its ground in traditional desktop management. In 2010, Thoma Bravo stepped in to buy LANDESK from its then-owner Emerson Electric for $230m, supplementing it with a handful of smaller firms and topping it off with AppSense in March 2016. (While larger than RES, AppSense garnered basically the same multiple as RES in its sale to LANDESK. 451 Research M&A KnowledgeBase also has estimates for the AppSense sale.)

In January, Clearlake stepped in to buy LANDESK, a transaction that we understand valued the company at $1.15bn. The PE firm combined it with its own portfolio company, HEAT Software — itself a combination of FrontRange and Lumension — and eventually gave the cobbled-together infrastructure software giant its new name, Ivanti.

The rechristened company offers products in four main areas: client management, endpoint security, IT service and support software, and enterprise mobility management. Overall, it employs roughly 1,300. RES, with roughly 250 employees, adds complementary software tools. The startup is strongest in user workspace management and automation tools, but also has an enterprise app store, file sharing and synchronization, IT service management desk, and (most recently) endpoint security. RES also brings more of a European focus – the company was founded in Holland in 1999 and maintains a fairly strong business in the Benelux region.

From a technical point of view, it’s likely RES Automation Manager will be the most valuable asset that can be cross-sold to the rest of the Ivanti customer base. Virtual desktop management is a maturing space that’s now mostly dominated by Citrix, VMware, Microsoft, AWS and Google, alongside a growing set of desktop-as-a-service providers using technology from one or more of those companies. This broad competitive pressure weighed heavily on RES’s valuation, as surely as it did in the sale of rival AppSense a little more than a year ago.

Can Dell safeguard the VMware ‘crown jewels’ in EMC acquisition?

Contact: Brenon Daly

In announcing the largest-ever tech transaction, both Dell and EMC repeatedly assured the market that VMware, which has consistently accounted for an outsized chunk of EMC’s overall valuation, would retain its status as ‘first among equals’ in the EMC federation. Roughly speaking, VMware generates only about one-quarter of EMC sales, but accounted for three-quarters of the EMC’s overall value before the acquisition. VMware was rightfully termed the ‘crown jewel’ of the landmark transaction.

However, despite those intentions, VMware has nonetheless lost some of its luster due to the pending acquisition, at least in two key constituencies. Both IT buyers and Wall Street investors are more than a little bearish on Dell owning the virtualization kingpin. Since the acquisition was announced, VMware’s market value has fallen by as much as $5bn. (That decline is also pulling down the overall value of the transaction because part of the consideration is in the form of tracking stock.) VMware shares have slumped to their lowest level since mid-2013.

To understand why Wall Street is selling the Dell-EMC deal, we have to look to the ultimate arbiters of value for any company: customers. And based on 451 Research’s survey of nearly 450 IT decision-makers, Dell has a lot of work to do to ease the concerns that it will mishandle EMC and its ‘crown jewel.’ In our survey, four of 10 IT pros who currently buy EMC products, but do not buy Dell products, gave the proposed acquisition a ‘thumbs down.’ That was almost three times higher than the percentage of pessimistic Dell-only customers. The main reason cited by EMC-only customers for their bearishness? They still view Dell as dealing in commodity technology. Obviously, with that perception, it’s going to be extremely challenging for Dell to hit its target of $1bn ‘revenue synergies’ through its EMC acquisition.

VMW rev 2010-15

Are customers buying the Dell-EMC deal?

Contact: Brenon Daly

Michael Dell has had his say. Same with Joe Tucci. But are the customers of the Dell and EMC chief executives actually buying what the two companies are saying about the tech industry’s largest acquisition? Only one way to find out: ask them.

With the ink barely dry on the announcement of Dell’s record-breaking $63.1bn purchase of EMC, 451 Research’s Voice of the Enterprise surveyed almost 450 IT decision-makers to get their sense of what they liked about the transaction, what worried them and, most importantly, how the proposed combination would affect their IT spending. (See the executive summary of the survey results.)

Ultimately, the sentiment and intention voiced by customers – such as those we surveyed – will determine whether Dell-EMC builds itself into a true IT infrastructure and services powerhouse or, like so many other multibillion-dollar tech pairings, devolves into an unhappy, underperforming union. So what does the ‘buyside’ think about the deal?

  • Overall, three out of 10 respondents gave the mega-transaction a thumbs-up, compared with two out of 10 who voted it down. However, within that broad assessment, there was a clear division between the Dell and EMC camps. Dell-only customers (those that currently buy no products from EMC but do buy from Dell) were almost three times more likely to have a favorable view of the deal than EMC-only customers (40% vs. 15%).
  • Why are a plurality of EMC customers bearish about the company’s prospects inside Dell? For the most part, they still view Dell as dealing in commodity technology. More than four out of 10 EMC-only customers consider Dell primarily a PC supplier, and another 20% identify it as mainly a low-cost IT supplier.

As we look at the results of the survey, particularly the perception of Dell as a ‘box maker,’ we can’t help but think that some of the sharp divergence between the views of the two customer bases is attributable to the sharp divergence between the M&A programs at the two companies. To be blunt, Dell was late to the game, with a long-held institutional preference for organic development rather than inorganic expansion. In contrast, EMC liked to shop, spending more than $20bn on 100+ acquisitions over the past 15 years, according to 451 Research’s M&A KnowledgeBase.

In fact, by the time Dell (belatedly) got its M&A machine revving in mid-2007, EMC had already purchased many of the key components of its ‘federation’ business: Documentum, RSA and, of course, the crown jewel of VMware. One existential question – which, for the record, we didn’t ask our panel of IT buyers – was whether Dell would have even needed to buy EMC outright if it had picked up some of the other companies that were nabbed by EMC. Again, to see the responses to questions we did ask on the Dell-EMC combination, check out the executive summary.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA .

Dell looks to become ‘indelible’ IT vendor with EMC

Contact: Brenon Daly Simon Robinson

Announcing the largest tech deal since the Internet bubble burst, Dell plans to pay approximately $63.1bn for EMC. The debt-laden combination would create a sprawling IT giant with multibillion-dollar businesses in many of the primary enterprise technology markets, including storage, information security, IT services, servers and PCs. (For context, the combined Dell-EMC entity would be larger than Hewlett-Packard Enterprise (post-split), NetApp, Juniper Networks and Symantec combined.) Dell’s bold transformational transaction is not coming cheap, however. The company is valuing EMC significantly more richly than it valued itself when it went private two and a half years ago.

Further, Dell’s relatively pricey bulking up comes at a time when a number of rival enterprise IT vendors are slimming down. More to the point, several of these competitors are unwinding earlier blockbuster acquisitions they made in hopes of staying more relevant in a shifting IT market. The arrival of the public cloud has siphoned off billions of dollars that once flowed unimpeded to Dell, EMC and other first-generation technology firms. However, IT customers increasingly lack the appetite to buy, install and manage dozens of ‘piece parts’ and mold them into a cohesive whole. As a result, we can look at the combination of Dell and EMC as essential if the traditional IT model is to survive the onslaught from public cloud providers, most notably Amazon Web Services.

Though Dell has been on a path to build a ‘better together’ story for almost a decade, it clearly hasn’t been enough. In its effort to buy its way out of the commodity PC business, the company stitched together a patchwork of properties. However, the resulting ‘big picture’ has still not materialized. Dell has lacked a core focus point, as well as the heft and scale in any one market to dominate. Further, it has so far not sufficiently penetrated the large enterprise segment, or moved beyond its two longtime key verticals of healthcare and the public sector. Against this backdrop, it’s easy to see the attraction of EMC, which brings large enterprise credibility in storage, perhaps the industry’s most focused and effective sales operation and, in VMware, still one of the most strategic entities on the market.

EMC’s attractiveness also shows through in the valuation that Dell is paying, if not when viewed against the broader tech M&A market than certainly when put against Dell’s own worth. According to terms, Dell is paying 2.5x trailing sales and 11.5x trailing EBITDA for EMC. For comparison, in orchestrating the take-private of his namesake company, Michael Dell and his consortium paid just one-quarter the price-to-sales multiple of EMC and half the cash-flow multiple. Dell’s LBO, which stands as the third-largest private equity tech transaction in history, valued the company at just 0.5x trailing sales and 5.2x trailing EBITDA.

Look for a full report on the proposed Dell-EMC pairing later today on our website and in tomorrow’s 451 Market Insight.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Family drama at VMworld

Contact: Brenon Daly

Even before he talked products or markets, VMware CEO Pat Gelsinger kicked off his comments to Wall Streeters at his company’s annual conference with a moment of ‘family time.’ In this case, it was to defend the current corporate parentage, with EMC owning a super majority of VMware as part of a larger ‘EMC Federation.’

Gelsinger essentially said that the way things are now in the EMC family is the way they should be. He went on to knock down rumors that he was planning – or even considering – any changes in the current corporate structure, specifically singling out recent reports about a kind of fratricide by VMware in which his company would take over EMC. ‘Better together’ is the family motto.

Not everyone agrees, however. Some critics, such as the kind that buy small chunks of stock in a company and then try to tell it what to do, counter that the current structure actually inhibits growth in the family.

The activist hedge funds have a point, given that VMware stock has basically flatlined over the past five years while the S&P 500 Index has nearly doubled. (The underperformance stands out even more when we consider that a half-decade ago, VMware was running at less than $1bn in quarterly revenue. It now puts up more than $1.5bn in sales each quarter. There aren’t too many S&P 500 companies that are two-thirds bigger now than they were in 2011. Most, including EMC, have only slightly grown.)

Given that Elliott Associates, an activist hedge fund that has already successfully pushed to reshuffle EMC’s board of directors, effectively crashed the VMworld party, it’s not unreasonable to expect even more changes in the EMC Federation. (Remember, too, that the ‘standstill’ agreement between Elliott and EMC expires this month.) There may well be some family drama before the year is out.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Ciena expands SDN palette with $400m Cyan acquisition

Contact: Brenon Daly Jennifer Clark

After being out of the M&A market for more than a half-decade, Ciena has stepped back in with the equity-heavy $400m purchase of Cyan. Under terms, Ciena will hand over roughly $365m of its stock along with $44m in cash for fellow networking equipment and software vendor Cyan. (The purchase price includes $50m in convertible notes that Cyan sold last December.)

Cyan focuses on packet optical products, and its Blue Planet software is an SDN/NFV platform built to provide service orchestration, automation and SDN control in a multivendor network and to manage the lifecycle of virtualized services across datacenters and the WAN. Blue Planet contributed less than 10% to Cyan’s revenue in fiscal 2014, yet Ciena was attracted to the deal by the offering, which it thinks represents the next stage of multivendor management software.

Ciena’s bid values Cyan at $4.75 per share, which represents a 30% premium to the target’s previous closing price but is less than half the level of the company’s IPO just two years ago. Still, Cyan is getting a decent valuation, certainly compared with other recent networking transactions. Ciena indicated that its net cost for Cyan would be $335m, meaning it is effectively paying 3.3x the target’s 2014 revenue and roughly 2.4x projected 2015 revenue. In the sector’s recent blockbuster deal, Nokia has agreed to buy Alcatel-Lucent for $16.5bn in an all-stock transaction, valuing its French rival at basically 1x sales. (Of course, comparing that consolidation with the Ciena-Cyan pairing is a bit flawed, given that Cyan, while growing quickly, generates less revenue in a year than Alcatel-Lucent posts in two business days, on average.) Similarly, Ciena currently trades at essentially 1x sales.

Ciena expects the transaction to close before the end of its current fiscal year, which wraps in October. Morgan Stanley advised Ciena, while Jefferies banked Cyan. We’ll have a full report on this acquisition in tomorrow’s 451 Market Insight.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

VMware needs more ‘Know Limits’, less of ‘No Limits’

Contact: Brenon Daly

As VMware lowers the curtain Thursday on its annual gathering of customers and partners, we have a suggestion for planning VMworld 2015: come up with a better tagline than this year’s conference. The slogan ‘No Limits’ was inescapable at this week’s confab, graffitied onto walls and parroted by most VMware executives. Undoubtedly, the focus-grouped message was meant to convey the image of VMware standing as a central provider in an IT landscape of boundless resources, all flowing together seamlessly.

The reality, of course, is not quite so idyllic. (Just ask anyone at VMworld who has gone hand to hand in the past with some of the company’s management products, which have now been further complicated by being bundled together in vRealize Suite.) Enterprise technology is messy and prone to breaking down. The solution to that complexity isn’t to add more.

Rather than pushing the idea of No Limits, VMworld would have been more responsibly taglined ‘Know Limits.’ We acknowledge that our tweak on the slogan knocks some of the enthusiasm out of it. And when a company needs to come up with $1bn of net new revenue next year (taking the top line from basically $6bn in 2014 to $7bn in 2015), enthusiasm is a key selling point.

The kicker on VMware’s selection of No Limits as its central message to the 22,000 attendees of its annual confab is that the company should know that there are indeed limits to technology. In fact, at last year’s VMworld the company was only just dusting itself off after having hit some limits of its own. It found out, for instance, that it wasn’t an application software vendor, so it divested SlideRocket and Zimbra as part of a larger reorganization in the first half of 2013.

There’s no doubt that VMware is a far healthier company at this year’s VMworld than it was at last year’s event. (For the record, the 2013 VMworld tagline was ‘Defy Convention.’) We would argue that the company is healthier because it replaced its freewheeling, expansive operations with a more focused and disciplined approach to business. (In other words, VMware imposed some limits on itself.) Strategically, it pared down its portfolio and simplified it into three distinct offerings. The net result? VMware is growing 50% faster in the two quarters leading into this year’s VMworld than in the two quarters heading into last year’s confab.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

VMware thinking long and short in CloudVolumes pickup

Contact: John Abbott

With just 25 employees, CloudVolumes is a relatively small purchase for VMware, but one with big implications. By grabbing CloudVolumes, the virtualization vendor seeks an immediate boost to its desktop virtualization efforts and help in fending off a long-term threat from Docker.

The first version of its VMware View desktop virtualization software (a successor to VMware VDM) was introduced in 2008, but has taken longer than expected to gain momentum. VMware has made a handful of tuck-in acquisitions to bolster its desktop virtualization capabilities, including Desktone, Wanova and RTO Software. CloudVolumes provides a more efficient, cost-effective and easier to manage means of providing users with persistent virtual desktops.

While VMware is clearly keen to keep one step ahead of its direct competition, one of the biggest motivations behind this particular purchase may have been the huge rise of interest in Docker, the open source engine that automates the deployment of applications in lightweight, portable containers. Adding CloudVolumes, which virtualizes everything above the operating system (not just apps but also data, settings, libraries and user profiles), gets VMware similar capabilities.

We’ll have a more detailed look at this acquisition in tomorrow’s 451 Market Insight.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Citrix takes a breather from M&A

Contact: Ben Kolada

After setting an M&A spending record in 2012, Citrix has stayed on the sidelines. The company announced six acquisitions that year, including two of its three largest deals, and spent more than $750m, the most in its history. It has been pretty quiet since then, announcing only two acquisitions in 2013 for a combined total of just $11m.

The cooldown contrasts the trend we’re seeing among the other large tech vendors, most of which have moved toward fewer and larger acquisitions. (Our recent Tech M&A Outlook webinar talks more about this trend.) Citrix participated in this activity in 2012, when it announced its all-cash acquisitions of Bytemobile for $435m and Zenprise for $327m. What’s especially noteworthy is that those two deals combined were worth more than the free cash flow Citrix generated in all of 2012 (though we note that the Zenprise buy closed in January 2013).

However, poor financial results have derailed Citrix’s dealmaking machine since then. In the 15 months since announcing the Zenprise purchase, Citrix’s quarterly results have been rocky – it has lowered guidance or posted results below analysts’ expectations a half-dozen times.

Its recently released 10-K shows that Citrix paid $5.3m for Byte Squared in September and $5.5m for Skytide in December, its only two deals of 2013. At $28.2m, the lone purchase Citrix has announced so far this year, Framehawk, already surpasses its 2013 total M&A spending, but still falls below its three-year median acquisition size of $45m, according to The 451 M&A KnowledgeBase.

Citrix’s recent acquisitions

Year announced* Target Target abstract Deal value
2014 Framehawk Application mobilization software provider $28.2m
2013 Skytide CDN and streaming video analytics $5.5m
2013 Byte Squared Mobile file-editing software $5.3m
2012 Zenprise Mobile device management software $327m
2012 Beetil Service Management Helpdesk management SaaS Not disclosed
2012 Bytemobile Mobile traffic management software $435m
2012 Virtual Computer Desktop virtualization software provider Not disclosed
2012 Apere Single-sign-on security vendor $25.2m
2012 Podio Team collaboration SaaS provider $45.3m

Source: The 451 M&A KnowledgeBase *In 2012, Citrix also acquired two unnamed companies


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