VMware CEO Says It’s a ‘Good Time’ to Be Looking at Acquisitions

  • Gelsinger seeing a drop in “unicorn valuations," "arrogance"
  • Company is able to look at deals “into the billions”

VMware Inc. Chief Executive Officer Pat Gelsinger, whose parent company is in the midst of being acquired by Dell Inc., is mulling his own shopping expedition.

A decline in both “unicorn valuations" and “unicorn arrogance” means the virtualization-software company has more attractive opportunities for acquisitions, he said in an interview.

Gelsinger joins Silicon Valley executives like Hewlett Packard Enterprise Co.’s CEO Meg Whitman, and Alphabet Inc’s corporate development chief David Drummond in welcoming the opportunity for deals. Apple Inc.’s CEO Tim Cook and Salesforce.com Inc.’s CEO Marc Benioff have also commented on the potential for acquisitions in the new environment.

“We went from a sellers’ market to a buyers’ market,” Gelsinger said. “In that sense it’s a good time for us to be looking.”

VMware, which has more than $8 billion in cash and short-term investments, is able to consider deals worth “into the billions,” he said. Anything above $5 billion however would be a lot bigger than the company has done in the past, he said. Priority areas for deals remain the same as in recent years: mobile products, cloud, management, security and networking.

VMware’s parent company EMC Corp. is being purchased by Dell for $67 billion, in the biggest acquisition in technology history.

During the explosive rise in the valuation of startups, in the past two to three years many public companies found themselves shut out of the market.

U.S. VC funding more than doubled from 2013 through 2015, and the median valuation of startup financing rounds jumping to $68 million in the third quarter of 2015, venture capitalist Mark Suster estimates. The unicorn herd -- companies valued at $1 billion or more -- has grown from 13 at the start of 2013 to more than 150, according to research firm CB Insights.

Now, capital has begun to flow more slowly to startups and valuations are falling. In the first quarter, there were 14 down rounds or exits below the previous financing valuations. In the fourth quarter of 2015, there were 16. That compares to six and seven such events in the previous two quarters, according to CB Insights.

This year, mutual funds including Fidelity Investments and T. Rowe Price marked down the value of their holdings in startups such as Hootsuite Media Inc., Dropbox Inc., CloudFlare Inc., Cloudera Inc., DocuSign Inc. and Zenefits.

“We looked at a couple of companies say six months ago and they had the unicorn valuation and the unicorn arrogance,” Gelsinger said. “You know ‘hey I’m a billion [valuation] going to four so if you want to take me off the table, pay me five.’ Well now they’re half a billion maybe going to one: Okay let’s have a discussion. So some of those become much more interesting conversations."

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