On its FY2Q20 earnings call on August 22, 2019, VMware announced its 10th and 11th acquisitions of the past 12 months whereby the company will spend $2.7bn to acquire Pivotal and $2.1bn for Carbon Black. Both acquisitions are expected to close by the end of the year.
Still true to its core, VMware expands at the fringes
VMware continues to post double-digit growth quarter after quarter, navigating enterprise cloud migrations in a sustainable and profitable way as it maintains its legacy install base and expands its cloud options. The vendor is aiming to evolve in line with customer demand and hedge against the financial impact of declining demand for legacy IT solutions by expanding its cloud-native portfolio and embracing Kubernetes. In doing so, it is maintaining its acquisitive strategy and continuing to promote its increasingly strategic partnerships with public cloud providers (even with Microsoft, despite competition between the two companies at the VM layer).
VMware’s core areas of strength continue to center around the virtualization layer, helping customers run and manage their legacy, cloud, and hybrid IT environments. Many of the company’s purchases in recent months, however, have focused on improving its management capabilities as enterprise environments continue to evolve, adding capabilities behind and adjacent to vRealize via CloudHealth Technologies, for example. VMware also has a particular focus on helping customers to build out their environments, adding Kubernetes capabilities with Heptio, Bitnami, and now Pivotal as enterprises demand portability and interoperability/openness across their increasingly hybrid IT environments.
As VMware continues to build out its portfolio and the breadth of its cloud-native offerings, it has also invested to evolve its security strategy and solutions to protect customer data with the acquisition of Carbon Black to offer customers enhanced enterprise-grade, cloud-native security solutions.
Carbon Black’s IPO was less than 18 months ago (it went public on May 4, 2018). It has shown strong but decelerating growth, with a notable deceleration in billings growth as of CY2018 foreshadowing difficulties ahead as a standalone company. Carbon Black’s share price has inched near its IPO price of nearly $24, most recently reaching above the $26 mark after VMware’s announcement.
The Pivotal announcement comes less than a year-and-a-half after Pivotal’s April 20, 2018 IPO. Since then, the company has reported strong but decelerating revenue growth as its base increased (it now has more than 380 subscription customers) amid notable share price fluctuations. Prior to the VMware announcement, Pivotal’s shares were at an all-time low, but have since been on the rise and are now inching near the opening price of more than $15. This transaction is unique because Dell Technologies owns a majority stake in each of the two companies and VMware already holds 15% of Pivotal’s diluted outstanding shares. Reportedly, the net cash payout for VMware to complete the transaction will be $800m. When it is complete, Dell Technologies will own 81.09% of VMware.
"VMware invests in dedicated customer success: Service providers take note," Report ID: ENS001-00006 (June 2019)
Cassandra Mooshian, Senior Analyst, Enterprise Technology