M&A Alert - January 12, 2010
VMware Agrees to Acquire Zimbra
Transaction Overview
On January 12, 2010, VMware (NYSE: VMW) announced that it has agreed to purchase Zimbra.
Target Description
Zimbra offers an open-source webmail and calendaring application with collaborative features, focusing on the small/medium sized enterprise market. Zimbra’s collaborative suite mixes features of Outlook and Gmail. While maintaining an appearance similar to Microsoft Outlook, Zimbra incorporates smart features such as conversation view for emails,Skype click-to-call button and Yahoo! maps. Zimbra offers its products on a Software as a Service (SaaS) basis and manages more than 55mm e-mail boxes for businesses, universities and Internet service providers. As an independent Yahoo! product division, Zimbra achieved 2009 mailbox growth of 86% overall and 165% among small and medium business customers. Zimbra is integrated into Yahoo! Mail and Yahoo! Calendar products. Founded in 2003, Zimbra is headquartered in Sunnyvale and was acquired by Yahoo! in 2007 for $350mm.
Buyer Description
VMware offers virtualization solutions, which allow servers (and desktop computers) to be used as a pooled resource, enabling maximum utilization. Typically, the computing and storage resources of servers and desktop computers are rarely utilized to their capacity. Virtualization allows the flexible use of these resources across multiple servers or PC’s, resulting in far lower hardware requirements. Virtualization technology has been particularly popular within the datacenter environment, leading VMware to begin
offering their own “cloud services”, or VMware virtualized datacenter services. Competitors include Microsoft’s Azure, IBM, HP, Cisco, Oracle, Amazon and Red Hat. Brian Byun, GM of Cloud Services, was the key executive sponsor of the transaction. VMware was founded in 1998 and is headquartered in Palo Alto, California. VMware is a subsidiary of EMC following its purchase for $625mm in January 2004
Transaction Parameters
UPDATE: Yahoo indicated in it’s March 2010 10Q filing with the SEC that the net proceeds from the sale was $100mm.While transaction parameters were not disclosed, it is extremely likely the purchase price was well below the $350mm that Yahoo! had paid for Zimbra in 2007. The purchase includes Zimbra’s intellectual property and employee retention incentives for Zimbra’s 110 employees. Yahoo! will retain right to utilize Zimbra’s technology in its communications services, including Yahoo! Mail and Yahoo! Calendar.
Strategic Rationale
The acquisition of Zimbra signals that VMware intends to strongly compete in the “cloud-based” or SaaS application business. This represents a material extension of their business strategy beyond their legacy of infrastructure products and services. Zimbra is the second VMware purchase in the cloud computing area in the last twelve months. In August 2009 it bought SpringSource (an open-source developer platform)for $446mm. As indicated by Linux.com, VMware signaled their desire to move into the application layer with this acquisition, moving it into direct competition with Microsoft, Google, SAP, Salesforce.com and SAP.
Architect Partners’ Observations
As indicated by Matt Asay of cnet, this transaction highlights the importance of cloud-based applications, as an extension of cloud infrastructures or platforms. This also is consistent with the trend toward both PaaS-based cloud service and open-source SaaS-based cloud service.