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EMC Acquisition of VirtuStream Closes the Door to a VMWare Spin-Off

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Two days ago, storage giant EMC announced that it has reached an agreement to acquire VirtuStream for $1.2B. VirtuStream is not the most well-known platform in the cloud market but one that has developed a considerable penetration in the enterprise space. This move follows the recent acquisition of CloudScalingrepresenting another step in EMC’s strategy to develop a robust cloud portfolio.

While the acquisition brings very clear benefits to the EMC cloud stack from the capabilities standpoint, it has raised some interesting questions about the future of EMC’s crown jewel: VMWare. In recent months, EMC has been under pressure from activist investor Elliott Management to spin off VMWare as a separate company. The hedge fund manager has been critical about EMC’s federation structure under which companies like RSA, Pivotal and VMWare are run as independent companies. The debate about a potential VMWare spinoff has continue throughout 2015 in part fueled by the VMWare’s relatively poor market performance. The acquisition of VirtuStream seems to be a clear signal against those plans.

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From a technical perspective, VirtuStream allows companies to transition applications to the cloud in a secure and compliant way. The xStream cloud management platform offers a consistent management   across public, private and hybrid cloud topologies. Those capabilities clearly align with the VMWare’s technologies like vCloud Air that provide a robust option for hybrid cloud enterprise topologies. From that perspective, the acquisition of VirtuStream only indicates EMC commitment to build a robust cloud portfolio in which VMWare is the central piece. In that sense, VirtuStream integration with vCloud Air will accelerate the path for customers migrating applications to a hybrid cloud topology powered by the VMWare stack. Regardless of how the integration between VirtuStream and vCloud Air materializes, its pretty obvious that EMC plans to keep both business running under its “federation”.

Despite the technical alignment and the fact that the price for the acquisition was relatively reasonable and the technology, investors clearly were not thrilled with the EMC decision. To prove the point: EMC shares were down 2.2% at $26.25 in mid-afternoon trading on Tuesday. EMC’s 52-week trading range is $25.07 to $30.92, and the market cap is $51 billion.

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Posted by on May 28, 2015 in Uncategorized

 

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The List of Companies that can Acquire Salesforce.com is Smaller than you Think   

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Yesterday, Bloomberg broke the news that Salesforce.com have hired advisers to evaluate a potential takeover offer. The news spread incredibly rapidly and the CRM stock had to be halted due to volatility. When trading resumed, the stock was up 10% trading at an all time high.

As media outlets started speculating about the potential Salesforce.com acquirers, there was a consensus that only IBM, Google, Oracle, Microsoft and SAP have the sufficient market cap and cash to afford what could be considered the second highest technology acquisition of all times. However, as we start analyzing each potential acquirer, we quickly realize that the list of smaller than we think.

Let’s take a look:

Microsoft

  • Pros: Microsoft seems to have over $95B in cash that could be deployed into M&A activity. The Redmon company has established a strong relationship with Salesforce.com on the CRM side and an acquisition can help immediately help their Office365 and business suites. Other components of the Salesforce.com platform like the social analytics and marketing platform can also be a great fit for Microsoft’s portfolio.
  • Cons: While the Salesforce.com CRM suite seems to be a great fit for Microsoft, we can’t say the same about the the rest of the platform. Specifically, there is a strong competition between the Salesforce1/Heroku and Azure platforms which will be hard to reconcile. Additionally, keep in mind that Azure and Salesforce1 have been built in different technology stacks. Finally, a takeover offer doesn’t seem to be the style of the Satya Nadella and the current Microsoft board.

IBM

  • Pros: Acquiring Salesforce.com will represent a string accelerator toi IBM’s SaaS business. Also the Salesforce1 platform fits nicely with IBM’s aggressive investments in the mobile and IOT spaces.
  • Cons: With only about $9B in cash, IBM doesn’t seem to have enough liquidity to embark in such an aggressive acquisition. Also, similar to Microsoft, IBM is heavily invested in their cloud platform which presents some serious overlap with the Salesforce1/Heroku stacks.

Google

  • Pros:com can be a very strong and necessary addition to Google’s enterprise business. Additionally, Salesforce1/Heroku can help to expand Google Cloud’s capability set which is still trailing competitors like AWS or Azure.
  • Cons: Acquiring Salesforce.com will be a strong shift from Google’s current trajectory making it’s enterprise business one of the most relevant business units of the entire company. Also, a hostile takeover doesn’t seem align with Google’s culture.

SAP

  • Pros: SAP has embarked in an ambitious effort to modernize its existing business suite. Acquiring Salesforce.com could be the accelerator needed to effectively execute on those plans. The marketing and analytics suite seemed to be a perfect fit for SAP. Also, the Salesforce1/Heroku platforms can really help SAP’s struggling cloud business.
  • Cons: SAP seems to only have about $5B on hard which will require the German giant to take on some debt to pursue the acquisition.

Oracle

  • Pros: Oracle seems to be a great candidate to acquire Salesforce.com. The CRM and business platform can really simplify and help Oracle’s chaotic SaaS business. Salesforce1/Heroku can be a great fit for Oracle’s Cloud stack which is lagging competitors like IBM, AWS and Azure. Also, don’t forget that Salesforce.com leverages a lot of Oracle technology which will make the technical integration slightly less challenging. Finally the existing relationship between Benioff and Larry Ellison should not be ignored.
  • Cons: Oracle has reported to have around $14B in cash and another $30B in securities. In that sense, Oracle will have to assume some heavy debt to pursue the acquisition.

I hope the previous analysis makes sense. In addition to the previous list, Amazon, Alibaba and EMC could also be considered as potential acquirer although not at the same level of the ones included previous list. Is that enough for speculation? What do you think?

 
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Posted by on April 30, 2015 in Uncategorized

 

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VMWare is Back! And It Looks Like the Old VMWare

Three weeks, a new CEO and two acquisitions! VMWare seems to be fighting back with a level of energy we haven’t seen in quite some time. Yesterday during their quarterly earnings report, VMWare announced the acquisition of Nicira (beautifully pronounced “nice era” ) for an astonishing $1.26B. This follows on the heels of the acquisition of DynamicOps a few weeks ago. Between acquisitions and earnings report, VMWare announced that CEO Paul Maritz will be stepping down and being replaced with current’s COO Pat Gelsinger. Seems like a lot for a few weeks doesn’t it?

The acquisition of Nicira is nothing but a brilliant move on VMWare’s side. The startup that has been in stealth mode for about five years and has raised over $50M in venture capital, has tackled one of the most important problems in the virtualization and, consequently, cloud computing worlds: network virtualization. In the same way, VMWare pioneered the server virtualization models; Nicira has built a technology that virtualizes the physical networks. Without haven’t seen the technology in action, I can clearly imagine that this type of technology can add another dimension of elasticity to existing cloud infrastructures.

Despite the brilliance of the technology, its important to notice that VMWare is paying top dollars for a nascent technology and a remarkable team and not for a fully developed company with a clear go to market strategy. This bold move shows the risk taking mindset that has been missing from VMWare in recent years.

Without a doubt the most successful enterprise software company of the last few years, VMWare built an empire based on revolutionary’s technologies, innovation and constantly defying bigger companies like Microsoft. However, in the last two years, VMWare traded its “white knight” armor and developed a sort of tyrannic and hardly innovative reputation within their customers. Consequently, VMWare started taking repeatedly punches from the “now underdogs” of the virtualization space such as Microsoft, Citrix and even Oracle.

The acquisition of Nicira is a clear sign that VMWare is going back to its core DNA: out-innovate and out-execute everyone. With Nicira, VMWare has acquired a unique technology that, if executed correctly, can put them in a great position to dominate the $37B data networking market and provide a clear differentiator in their cloud computing offering.

From my personal standpoint, I am super excited to see a great technology win without having to get corrupted with the realities of building a business. More than anything, I am excited to see VMWare’s focus on innovation and creativity back!

 
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Posted by on July 24, 2012 in Uncategorized

 

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