Consolidation in the enterprise mobile industry was heavily predicted in the latter half of 2013, however, the first major deal of its kind this year likely came as a surprise.
VMware, Inc., a global virtualization and cloud infrastructure provider, and AirWatch, a provider of enterprise mobile management and security solutions, announced that they have signed a definitive agreement under which VMware will acquire AirWatch for approximately $1.175B in cash and approximately $365M of installment payments and assumed unvested equity.
3 Drivers of the Deal
Chris Hazelton, Research Director, Mobile & Wireless, 451 Research, commented in an email interview with Mobile Enterprise, “The acquisition of AirWatch by VMware was driven by three things. This is a defensive move as a result of the acquisition of Fiberlink by IBM, there was a need to expand the reach of VMware Horizon Suite beyond mobile virtualization, and this is VMware doubling down on its end user computing (EUC) division. This division is now lead by relatively new hire Sanjay Poonen, who oversaw the integration of Sybase into SAP.”
The AirWatch team will continue to report to founder and chief executive officer John Marshall as part of VMware's End-User Computing group, led by Poonen who is the company’s EVP and GM. Alan Dabbiere, AirWatch's co-founder and chairman, will be overseeing a new AirWatch operating board which will report to Pat Gelsinger, VMware chief executive officer.
Of this, Hazelton said, “The reporting structure of AirWatch's Chairman and CEO also speaks to the importance of the EMM vendor's product line to VMware. AirWatch has over 500 people in R&D, more than the total employee count of many EMM vendors, looking to build and add new features and capabilities on top of device, app, and content management. These assets will be leveraged to further build out VMware's EUC division.”
Privately held and headquartered in Atlanta, GA, AirWatch’s enterprise solutions include mobile device management, mobile application management and mobile content management. The company says it has 10,000 customers globally and more than 1,600 employees across nine global offices. The Atlanta site is expected to expand and be the center of VMware's mobile operations.
"When we started AirWatch, we set out to help businesses succeed in the mobile explosion that was set to come. Now there are more than 2 billion smartphones and tablets in the world and more than half of those devices touch an enterprise," said Alan Dabbiere, co-founder and chairman, AirWatch in a release. "By joining a proven innovator like VMware, we now have an opportunity to bring our leading-edge solutions to an even broader set of customers and partners to help them optimize for the mobile-cloud world."
In his January 22 blog, Poonen called this move a “commitment to mobile” and said it extends the company’s “proposition from data-center to device.”
This acquisition will expand VMware's End-User Computing group; AirWatch's offerings will form an expanded portfolio of mobile solutions that are complementary to VMware's portfolio.
Poonen wrote, “One of the capabilities that we are most excited about is AirWatch’s ability to scale their platform to manage and secure millions of devices, in the cloud, well ahead of anyone else in the industry. AirWatch built their solutions from the ground up to securely support a customer’s entire corporate infrastructure at scale, while at the same time giving customers the flexibility and choice of cloud or on-premises deployment. AirWatch straddles mobile, coud and security – all boardroom topics and CIO priorities today, which makes AirWatch’s importance like a ‘triple-word score’ in the game of Scrabble!”
The acquisition has been approved by the boards of directors of both VMware and AirWatch and the acquisition is expected to close during late Q1 2014 subject to regulatory approvals and customary closing conditions. The acquisition will be funded through a combination of balance sheet cash and proceeds from approximately $1B of additional debt to be provided by EMC.
The industry pressure is on — will the mergers continue?
According to Hazelton, “This deal now puts intense market focus on MobileIron and Good Technology, both of which have been working steadily on IPO exits. They are the last remaining large pure play EMMs — so it is very likely that a large enterprises vendor like Oracle (may need bigger investment than Bitzer), HP or CA may realize that the time is now to invest on a large scale on EMM.”