Shakeout looming in MDM sector?

Contact: Ben Kolada

The crowded mobile device management (MDM) sector is likely to see a shakeout in the near future. By one account, there are already more than 80 firms vying for space in the growing MDM market. As the sector’s more notable vendors increasingly advance ahead of the competition, we expect laggard firms will either shutter their doors or be picked off one by one in small bolt-on technology acquisitions. But as the sector narrows, the future may shine brighter for firms that are making names for themselves.

As the smartphone and tablet take more overall computing share from laptops and desktops, the need for MDM will accelerate. Increasing adoption of tablets, in particular, is driving MDM demand. According to a report by ChangeWave Research, the survey arm of 451 Research, 23% of respondents said they plan on purchasing tablets for their employees in the first quarter of 2012, up from just 5% in the fourth quarter of 2010.

As the largest acquirers continue to consolidate the software stack, we expect to see them move into the MDM market. IBM has already announced a couple such acquisitions, picking up BigFix in July 2010 for an estimated $400m and Worklight in January for an estimated $70m. Dell and BMC are also expected to be eyeing this market, and would likely look at the frontrunners – firms like AirWatch, BoxTone, Good Technology, MobileIron and Zenprise, to name a few – as their top acquisition choices. But these firms aren’t likely to be had for cheap. We’ve already heard rumors that one of them is looking for a $400m-plus exit, and that another was previously in the sights of a $250m deal. Meanwhile, valuations will likely rise as these vendors continue growing. In 2011, Zenprise tripled its headcount, while MobileIron doubled its employee base. AirWatch’s headcount hit 400 last year, and it expects to double that this year.

Divesting at any costs

Contact: Brenon Daly

We recently noted how VCs are having to settle for scrap sales as they go through a bit of portfolio clean-out. But, hey, at least the value destroyed in each of the companies is only in the tens of millions of dollars. Companies that have been recently cleaning out their own portfolios in the form of divestitures have been eating hundreds of millions of dollars. Even billions of dollars.

Last week, two companies were in the news for what we would consider ‘divest at any cost’ transactions. First up, Motorola unwound its two-year-old purchase of Good Technology. After paying about $500m in November 2006 for Good, we would guess that Motorola almost certainly received less than $50m in selling the mobile messaging infrastructure vendor to privately held Visto. (At least there was something left to sell. The same can’t be said of Intellisync, which Nokia bought three years ago for $354.3m but recently said it will be shuttering.)

More dramatically, Nortel Networks looks likely to pocket just two pennies for every $1,000 that it handed over for Alteon WebSystems in mid-2000. (Keep in mind, however, that Nortel paid the $7.8bn total is stock, not cash.) The bankrupt telecom equipment vendor has put Alteon on the block, and the reported frontrunner is Israel-based Radware, which has put forward a bid of some $14m. (Since Nortel filed for Chapter 11, Alteon is being sold under an auction process run by the bankruptcy court, and other bidders could emerge.) As a final thought on both the Motorola and pending Nortel divestitures, we would note that both castoff divisions are landing in other companies, rather than a buyout shop.