Wednesday, August 12, 2009

VMware enters app development stack w $420 m SpringSource; largest VMW deal yet

On August 10th VMware announced a $420mm cash & stock acquisition of open-source Java development framework vendor SpringSource. The purchase price which marks the largest VMware transaction, includes $331 m in cash, $31 m in stock for vested unexercised SpringSource options and $58 m of unvested SpringSource stock. In addition VMware is setting aside a $60 m stock retention bonus pool.

SpringSource has 150 employees, $20 m in trailing revenues, with cash flow positive expected in 1H 2010 and $25 m in funding from Accel and Benchmark. The premium price, a nice exit for the VCs, represents a 21x EV/TTM Revenue multiple. The premium is justified when you consider the need for VMware to diversify away from its core market and the scarcity of the target. Red Hat's $350 m acquisition of JBoss and Citrix's $500 m acquisition of XenSource serve as examples of platform vendors moving into development and deployment stack and paying a significant premium. The acquisition will also help draw some of the unwanted attention away from the recent ousting of founder-CEO Diane Greene.

VMW plans to use SpringSource to jointly develop Platform-as-a-Service (PaaS) solutions for data centers and for cloud service providers. TechCrunch's Cameron Christoffers highlights the benefit of "lean software" that SpringSource would bring to VMware, enabling faster delivery of business applications in the cloud. For a detailed rationale here is what VMW CTO Steve Herrod and SpringSource CEO Ron Johnson have to say. This acquisition is in line with the consolidation trend highlighted by Oracle's intention to own the entire hardware/software stack with SUN.

A particularly interesting fact about the deal is that no advisors were used in this scant tech M&A environment; a missed $5-$10 m fee opportunity. Dare I say that with all the lay-offs, perhaps there are not enough bankers left to cover the likes of VMware...

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