Palo Alto, Calif.-based virtualization software vendor VMware Inc. will acquire Atlanta-based mobile device management firm AirWatch in a deal worth $1.54 billion, the firms announced this morning.

The deal includes $1.175 billion in cash and $365 million of instalment payments and assumed unvested equity. Leading the AirWatch team for VMware will be executive vice president and general manager Sanjay Poonen, while AirWatch CEO John Marshall will stay on to helm the AirWatch team. AirWatch co-founder and chairman Alan Dabbiere will be staying on and running an Airwatch operating board that reports to VMware’s CEO Pat Gelsinger.

The acquisition has been approved by both firm’s board of directors and is expected to close late this quarter. In a blog post this morning, Poonen describes the AirWatch product portfolio as complementary to VMware’s end-user computing group that offers desktop-as-a-service.

“The acquisition of AirWatch extends VMware’s proposition from Data-center to device, and strongly positions us for the mobile-cloud era,” Poonen writes. “After the closing of the acquisition, the combination of AirWatch and VMware will make us an instant leader in enterprise mobile management and security, one of the fastest growing and most strategic markets to businesses today.”

He goes on to describe VMware as the enterprise mobility platform for the post-PC era that will support iOS, Android, or Windows.

Hyperbole aside, VMware’s acquisition of AirWatch gives it one of the leading vendors of enterprise mobility management (EMM) solutions, a category of mobile device management (MDM), says Mike Battista, senior consulting analyst, Info-Tech Research Group based in London, Ont. The move also puts VMware in a good position against competitor Santa Clara, Calif.-based Citrix Systems Inc., which closed its acquisition of MDM vendor Zenprise in January 2013.

But was the valuation of AirWatch too high? After all, Citrix picked up Zenprise, also regarded as a leader in its space, for $355 million just a year ago.

“It shows that mobility has been growing so quickly in the past year that now an EMM vendor is worth $1.5 billion,” Battista says. “That kind of surprises me, but it kind of makes sense too.”

Good Technology is another leading provider of secure and managed enterprise mobility and collaboration tools. Good’s CEO Christy Wyatt says the AirWatch acquisition is an indication of the growing importance of MDM.

“This serves as a validation of the market as a whole,” she says. “It signals to the industry that bigger vendors are ready to take MDM seriously.”

Wyatt, whose company does not focus solely on MDM, said the size of the VMware purchase could signal to beginning of more standalone MDM providers being gobbled up by larger companies. Many MDM companies have an annual revenue of around $50 million.

Businesses are being challenged by the multiplication of devices, described as end-points by the IT department, being used in the office. Whether corporately issued or brought in by employees who want to use their personal devices, the surge in mobile devices over the last several years has lead to several IT challenges – namely security and access management. VMware says AirWatch’s solution helps keep corporate and personal data separate by using containerization, along with a suite of other features and upcoming telecom expense management features. The platform can be scaled up to support millions of devices, Poonen writes in his blog post.

Key to VMware’s success after the acquisition will be to integrate AirWatch’s product portfolio into its own offerings, Info-Tech’s Battista says. “If they let it stagnate for any amount of time, that’s where they could start falling behind other EMM vendors.”

The announcement somewhat surprised Battista. “I figured AirWatch would be one of the MDM vendors that would stay independent,” he says. “There hadn’t been any acquisition rumours to this point.”

AirWatch will become the focal point for all of VMware’s mobile development activities, Poonen says. AirWatch customers include 10,000 firms worldwide that are in the enterprise and mid-market space across several industries including financial, health care, government, and retail.

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