VMware to Buy AirWatch for $1.54 Billion for Mobile Tools

Jan. 22 (Bloomberg) -- VMware Inc., the biggest maker of software that lets computers run different operating systems, agreed to buy AirWatch LLC for as much as $1.54 billion, adding technology to help businesses manage and protect mobile devices.

VMware will pay $1.18 billion in cash and $365 million in installment payments and assumed unvested equity, the Palo Alto, California-based company said today in a statement.

The surging popularity of smartphones and tablets is forcing businesses to secure a multitude of new devices as employees move away from personal computers. AirWatch competes in the mobile-device management software market with companies such as MobileIron Inc., Citrix Systems Inc., SAP AG and Good Technology Inc. VMware needs AirWatch to fill out its line of management tools for gadgets that touch individual users, Chief Executive Officer Pat Gelsinger said.

“We clearly saw the puck was going to mobility,” he said in an interview. “If we weren’t in mobility, we weren’t in the end-user computing infrastructure space.” The company began looking at options in the market about a year ago and considered building its own business, and also looked at rivals to AirWatch, he said.

Photographer: Ronda Churchill/Bloomberg

VMware will pay $1.175 billion in cash and $365 million of installment payments and assumed unvested equity for closely held Atlanta-based AirWatch. Close

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Photographer: Ronda Churchill/Bloomberg

VMware will pay $1.175 billion in cash and $365 million of installment payments and assumed unvested equity for closely held Atlanta-based AirWatch.

Gartner Inc. expects the market for mobile-device management software to reach $1.6 billion in revenue this year, up from $784 million in 2012.

‘Post-PC World’

“As we look around our industry, mobile is global,” Sanjay Poonen, an executive vice president at VMware, wrote today in a blog post. “The world needs a robust enterprise mobility platform for the post-PC world of heterogeneous devices.”

VMware rose 1.2 percent to $98.51 at the close in New York. The stock fell 4.7 percent last year, when the Russell 1000 Index gained 30 percent.

Since taking over as CEO in September 2012, Gelsinger has focused VMware on three areas: Internet-based cloud programs; software to replace traditional networking equipment; and tools for managing and securing users’ computers and devices. With the AirWatch deal, Gelsinger said the company has a complete portfolio in each area, although it will continue to look at more acquisitions.

For VMware, majority-owned by EMC Corp., AirWatch marks the second acquisition of more than $1 billion in 18 months, after the 2012 purchase of Nicira, whose technology helps networks work more efficiently. Rival Citrix acquired its way into the device-management market last year with the purchase of Zenprise Inc. MobileIron and Good Technology, like AirWatch, are closely held and backed by venture capitalists.

Venture Funding

AirWatch, founded in 2003, raised its only institutional funding last year, bringing in $200 million from Insight Venture Partners and $25 million from Accel Partners. The Atlanta-based company has more than 10,000 customers globally, including and 1,600 employees in nine offices around the world.

The acquisition will be funded through a combination of cash and proceeds from about $1 billion of additional debt to be provided by EMC, the world’s largest maker of storage computers. The transaction is expected to be completed late in the first quarter, according to the statement.

“We loudly applaud this acquisition,” wrote Daniel Ives, an analyst at FBR Capital Markets, in a note to clients. “The strategic combination of VMware’s end-user computing technologies and AirWatch’s secure mobility management platform under one roof will add another leg to VMware’s growth stool over the coming years.” AirWatch will probably have sales of $75 million in 2014, Ives said.

VMware, which had $5.84 billion of cash and short-term investments at the end of September, said it will continue with its share-buyback program.

The company also said today that fourth-quarter revenue probably rose 15 percent to $1.48 billion, excluding sales from its Pivotal Software Inc. unit. That’s the high end of the company’s forecast range and surpasses the $1.47 billion average of estimates compiled by Bloomberg. The company is scheduled to release full quarterly financial results on Jan. 28.

To contact the reporters on this story: Niamh Ring in New York at nring@bloomberg.net; Dina Bass in Seattle at dbass2@bloomberg.net

To contact the editor responsible for this story: Cecile Daurat at cdaurat@bloomberg.net

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