Category: virtualization

VMware’s new era with Nicira

Brenon Daly

Contact: Brenon Daly

Having built a business valued in the tens of billions of dollars by virtualizing computing, VMware is now using its largest-ever acquisition in an effort to bring virtualization to networking. VMware will hand over a total of $1.26bn for startup Nicira. It’s a significant gamble for VMware, both strategically and financially.

The purchase is more than three times the size of VMware’s next-largest acquisition, and is roughly equal to the amount the virtualization kingpin has spent on its entire M&A program since parent company EMC spun off a small stake in VMware a half-decade ago. (VMware will cover the cost of the purchase from its treasury. As of the end of June, it held $5.3bn in cash and short-term investments, and it has generated $2bn in free cash flow over the past year.)

VMware has positioned Nicira, a company that only recently emerged from stealth, as a key component of its effort to put software at the core of datacenters. VMware has done that with servers – and to some degree, storage as well – by using software to essentially commodify hardware. It’s an approach that appears to undermine a once-cozy relationship with networking partner Cisco Systems. Incidentally, shares of the switch and router giant are currently at their lowest level in about a year, and it announced another round of layoffs at almost exactly the same time that VMware announced its big networking acquisition.

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

Independent now, but will independenceIT someday be acquired?

Ben Kolada

Contact: Ben Kolada, Thejeswi Venkatesh

Application hoster and desktops-as-a-service provider independenceIT (iIT) announced on Wednesday the tech-and-talent acquisition of cloud management platform Veddio Cloud Solutions. The cloud aggregator’s dashboard platform will be used to control iIT’s cloud workspace products. According to The 451 M&A KnowledgeBase, this is iIT’s first acquisition on record, but it won’t be its last. As it continues to fill out its product platform, will the company someday turn from acquirer to acquired?

Veddio offers a dashboard application that integrates services from a variety of Internet infrastructure providers, such as telco competitive carriers and MSPs. Through its dashboard, Veddio offers white-label application and cloud hosting, hosted PBX, email hosting, managed firewall, domain name registration, software virtualization and data backup and recovery services. As of the acquisition announcement, the five-employee firm had approximately 150 channel partners.

Though this is iIT’s first acquisition, according to our records, the company is planning additional inorganic moves both in the short and long term. We’re told it is eyeing another tech-and-talent acquisition. Specific details weren’t provided, but the next play will likely focus on the delivery of cloud services.

We’d also note that, although currently becoming more of an acquirer, independenceIT could someday become acquired. The small firm (it has 31 employees) could already be considered a prized target. The pickup of Veddio should provide for triple-digit-percent growth and when we last covered iIT, in 2010, we noted that it had already been profitable for two years.

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

I/O virtualization sector consolidates

Contact: Thejeswi Venkatesh, John Abbott

Rumors are swirling that Fusion-io has acquired patents and key employees from Aprius, after the I/O virtualization vendor failed last year. I/O virtualization, which helps remove the I/O bottleneck from servers, frees up resources for datacenter users and simplifies configuration and cabling. The sector has seen a wave of consolidation and exits recently, indicating both the difficulty of surviving as independents and the importance of the technology for future generations of server infrastructure. First, it was 3Leaf systems, which announced its acquisition by Huawei in November 2010 – only to be blocked by pressure from the US government. Then, earlier this year, Micron announced the purchase of Virtensys.

That leaves NextIO and Xsigo Systems as the only surviving independent companies that have multiplatform products. Xsigo is the more successful of the two and has been expanding its scope into networking I/O territory. For its part, NextIO has indicated that it’s going strong establishing new OEM partnerships. However, given the level of activity in the sector, we wouldn’t be surprised if the two surviving players got acquired by existing strategic partners Dell or IBM. Other potential suitors include firms in the adapter space such as Emulex, Mellanox and QLogic.

Webinar: The future of enterprise IT

Brenon Daly

Contact: Brenon Daly

In this era of disruptive technologies, what does the future hold for enterprise IT? What new innovations are expected to reshape software, networking and even the datacenter itself in the coming year? For a look ahead, join us for a special webinar on Thursday, February 9 at 9:00am PST/12:00pm EST. (Click here to register.) The heads of several practice areas at 451 Research will highlight a number of key trends in their sectors, and what impact that will have on the broader IT landscape.

Topics we will cover in the hour-long webinar include the emergence of truly virtualized infrastructure, the rise of software-defined networks and the trend toward modularity inside the new datacenters. We will also cover some of the financial implications of those trends, both in terms of capital raising and M&A valuations. To join the webinar on Thursday, simply register here.

Cloud deals arising from the fog

Ben Kolada

Contact: Ben Kolada

Going into the last day of the 9th Cloud Computing Expo, held in Santa Clara, California, we get the feeling that conference attendees will see an M&A shakeout within the next few years. To a degree, this dealmaking has already begun, with a small handful of exhibitors already having been scooped up, including a couple of firms that were acquired just last month. Meanwhile, the remaining vendors, most of whom are young startups, are scrapping to define and prove themselves for what they hope will someday be their own fruitful exits.

The cloud computing market is real and growing. My 451 Market Monitor colleagues, who have the tedious task of sizing the cloud market, estimate global cloud revenue (excluding SaaS) at $9.8 billion for 2011, with nearly 40% revenue growth expected in 2012. Many players in this sector have already taken note of its potential and acquirers’ interest, resulting in an increase in both deal sizes and deal volume for cloud vendors. According to The 451 M&A KnowledgeBase, so far this year a record 465 transactions claimed some aspect of cloud. That’s nearly double what we saw in the same period last year. (To be honest, many of these acquired companies are about as cloudy as snake oil, but there are real cloud deals being done. Platform Computing and Gluster, which both announced their sales last month, sold for an estimated combined deal value just shy of $450m.)

However, in terms of revenue, most of the cloud startups we spoke with haven’t yet really proven themselves commercially. But as these firms transition their focus from product development to marketing and sales, their growth will attract more and more suitors. And double-digit revenue isn’t exactly a requirement for a successful exit, as both the recent CloudSwitch and Cloud.com takeouts proved. Though we understand that none of these companies are looking to sell just yet, we wouldn’t be surprised if cloud-enablement providers such as OnApp, Abiquo and Nimbula are picked off one by one within the next few years. And we were reminded yet again that open source networking and routing vendor Vyatta could someday see a real offer from Dell, though the IT giant would likely face a competing bid from Cisco.

Confab-ulous M&A at two cloud companies

Brenon Daly

Contact: Brenon Daly

Two of the most richly valued tech companies are each hosting annual get-togethers this week, and M&A is figuring into both of the confabs. VMware opened VMworld in Las Vegas on Monday, while saleforce.com followed a day later with Dreamforce in San Francisco. As these companies were getting ready to open the doors for the event, both announced that they had done acquisitions – with both deals coming in the security market.

VMware reached for PacketMotion, a startup that was able to capture who’s doing what on a network and whether they should be doing that at all. VMware indicated that the acquisition should allow its customers to automate security and compliance policies. For its part, salesforce.com added encryption vendor Navajo Systems. While terms weren’t announced on either transaction, we suspect that the price tags for both startups were in the low tens of millions of dollars. On the other side, we’d note that, collectively, VMware and saleforce.com are valued at north of $50bn.

Part of the tremendously rich valuation that both VMware and salesforce.com enjoy can be chalked up to the fact that each company is the sort of corporate representation for two key components of the whole cloud computing model: VMware for virtualization and salesforce.com for on-demand delivery of software and, more recently, infrastructure.

So it’s no surprise that these cloud stalwarts both recognized the need to shore up their cloud offerings by going out and buying security startups. After all, security remains probably the most important concern for broader adoption of cloud computing. In a recent survey, our sister organization ChangeWave Research asked both IT purchasers and users at companies to rate the security of current cloud offerings on a scale of 1 (very unsecure) to 10 (very secure). The median response was a distinctly middling 5.6. As a point of reference, the rating for cloud security was actually lower than the median rating for the reliability of cloud offerings, even after several high-profile outages at Amazon Web Services so far this year.

Riverbed buys Zeus, but shares go to Hades

Brenon Daly

Contact: Brenon Daly

Announcing the largest deal in its history, Riverbed Technology said it will hand over $110m in cash for Zeus Technology in an effort to broaden its application performance portfolio. Zeus, which sells software for load balancing and traffic management, generated about $12m in revenue over the last year and is expected to contribute some $20m in sales for the coming year. That means Riverbed is paying nearly 10 times trailing sales for Zeus, and that’s not including a potential $30m earnout for the UK-based startup. (Fellow UK-based firm Arma Partners advised Zeus on the sale.)

In addition to being a rather richly valued purchase, the acquisition of Zeus also effectively doubles the amount that Riverbed has spent, collectively, on M&A in its history. The deal will likely bring Riverbed more deeply into competition with the main application delivery control vendors, including F5 and Citrix.

From our perspective, we might note that it’s a good thing Zeus is taking its payment in cash. Why? Riverbed stock lost nearly a quarter of its value on Wednesday. (The WAN traffic optimization provider reported a bit of softness in sales in Europe for the second quarter.) The decline erased all of Riverbed’s gains for 2011, but the stock is still twice the level it was at this time last year.

Citrix targets SMBs with Kaviza

Ben Kolada

Contact: Ben Kolada

Broadening its enterprise VDI portfolio to the SMB segment, Citrix has acquired Kaviza, a startup offering VDI-in-a-box technology to SMBs. The move follows an initial Citrix investment announced in April 2010, and brings Kaviza fully under its fold. Though Citrix already had an enterprise desktop virtualization product – XenDesktop – the company was missing an SMB mass-market offering. This acquisition fills that gap and, with the backing of Citrix’s marketing muscle, Kaviza’s technology should see quick adoption. Indeed, the vendor has already made considerable progress on its own.

Kaviza’s success is in part attributed to its kMGR virtual appliance, which runs on a grid of commodity servers and manages virtual desktops. Once Kaviza is up and running, scaling up infrastructure shouldn’t require any more effort than dropping the virtual appliance into a new physical server since the appliance configures itself automatically.

The company’s VDI-in-a-box product has attracted a diverse client listing, and we understand that the average size of its deployments was growing. A German systems and service management vendor, Matrix42, chose Kaviza’s VDI-in-a-box to integrate with its IT-Commerce offering. Parker SSD Drives, a division of Parker Hannifin, deployed VDI-in-a-box to improve production time by reducing unscheduled downtime and time required for repair work. The University of Wisconsin-Madison College of Engineering uses the product to give its students remote access to teaching labs. And British Columbia’s Credit Counselling Society has also adopted Kaviza. We’ll have a full report on this transaction in tonight’s Daily 451.

Quest builds up vWorkspace with RemoteScan buy

Ben Kolada

Contact: Karin Kelley, Ben Kolada

In its latest desktop virtualization and management play, Quest Software has announced that it is purchasing the assets of imaging device management vendor RemoteScan. The deal lands Quest more healthcare accounts, mostly in North America, but the company plans an aggressive push into European markets next.

Quest will integrate eight-year-old RemoteScan’s assets, including all of its employees, with its vWorkspace group. The tiny target was launched in 2003 with RemoteScan for LAN, but has since been focusing most of its efforts on RemoteScan Enterprise and RemoteScan Universal. The deal gives vWorkspace one more competitive feature – wide driver support for imaging devices in LAN-based VDI and terminal services environments. Most of RemoteScan’s customers are in healthcare, although the vendor claims some traction in financial services and insurance markets. The products work with Windows Terminal Server and Citrix’s XenDesktop and XenApp, and support all other virtualized LAN environments using Microsoft’s RDP and Citrix’s ICA graphics-remoting technology.

Terms of the deal weren’t disclosed, but we understand that RemoteScan has had considerable success over the years, having lined up some 20,000 customers, with particular strength in the medical vertical. Since it hasn’t taken any institutional funding that would propel its growth, we bet that its revenue is still in the single-digit millions. And while Quest generally pays in line with broader market valuations, RemoteScan could have gotten somewhat of a premium, since companies that are successful in targeting the medical vertical typically get higher-than-average valuations.

The 451 Group picks up ‘voice of the consumer’

Brenon Daly

Contact:  Brenon Daly

For today’s deal, we move a little bit closer to home: The 451 Group announced today that it has acquired the assets of TheInfoPro, a New York-based advisory and research firm. Founded in 2002, TheInfoPro counts more than 100 organizations as clients and draws on extensive surveys of those IT buyers to get real-world perspectives and forecasts on IT innovation. Focus areas for TheInfoPro include security, storage, networks, servers as well as virtualization.

With the acquisition, TheInfoPro will become a division of The 451 Group, joining the New York City office. (Terms of the transaction weren’t disclosed.) The deal is the third significant purchase by The 451 Group in the past half-decade to expand our offerings around analyzing and advising our clients on the business of IT innovation