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.

IBM plays small ball in big market

Contact: Ben Kolada, Vishal Jain, Chris Hazelton

After a streak of batting in the majors, Big Blue recently took a swing in the minor leagues. The company’s recently announced pickup of Worklight is one of the smallest deals it has announced in more than two years. (In fact, Worklight’s $70m price tag is a fraction of the estimated $475m that IBM has spent on average for its acquisitions since the beginning of 2010.) Nonetheless, it’s a handsome price for a small company, and is indicative of the premium that acquirers are willing to pay for technologies that cover the entire scope of mobile app lifecycle development and management.

According to our understanding, Big Blue’s offer gives Worklight a boisterous valuation of 20-30x trailing sales. Why the sky-high valuation? Basically, as the PC era diminishes, IBM felt pressure to prop up its existing enterprise offerings for mobile clients. Faced with the extent of fragmentation, both on the client and back-end services side, IBM saw Worklight as key to the missing pieces in its puzzle. Worklight completes Big Blue’s coverage of HTML5 frameworks, brings single-code-based development, and provides encrypted local device storage as well as cross-platform publishing and packing capabilities.

Beyond its implications for IBM, the transaction is another example of a longer-term trend we’re seeing in mobile app lifecycle management. In our 2012 M&A Outlook – Mobility, we noted that enterprises need a platform that can manage their entire app development life cycle right from development and through to deployment and maintenance. Larger enterprises that have typically used mobile enterprise application platforms will eye app development firms or agencies in their quest to take control of mobile app development. These acquisitions would be similar to ones closed by Antenna Software, Deloitte, Financial Times, VeriFone and Wal-Mart in 2011.