Broadcom Sells VMware EUC

Broadcom and VMware are back in the news.

First, a quick review of the companies’ recent past:

• May 26, 2022 - in an unexpected move, Broadcom announced an agreement to acquire VMware.
• November 22, 2023 – Broadcom announced completion of its VMware acquisition.
• December 7, 2023 – Broadcom announced its intention to divest VMware’s End User Computing (EUC) division.
• December 23, 2023 – Broadcom announced an end to VMware partner programs and incentives.

On February 26, 2024, KKR, a private equity firm with a very diverse investment portfolio, announced that it had signed a definitive agreement with Broadcom to acquire VMware’s EUC division in a transaction valued at approximately $4B. KKR also stated that when the transaction closes VMware EUC will become a standalone company.

The news that VMware EUC will continue as a standalone company (with a new name) is a relief to many in the EUC community, especially customers and partners. And it’s a strong signal that this acquisition is different than Citrix's acquisition by Vista and Evergreen Coast Capital.

Vista-Citrix and KKR-VMware EUC Comparison

It would be easy to assume that KKR’s acquisition of VMware EUC will go the same route as Vista and Evergreen Coast Capital’s acquisition of Citrix, i.e., significant layoffs, elimination of R & D, enormous changes to the products, operations, and go-to-market strategy. However, a quick review of the respective actions resulting in the acquisitions tells a different story.

First, the reasons for each sale are completely different. The Citrix sale was the result of years of activist investor activity to gain control of the company, make it more profitable, and prepare it for an acquisition that amplified their investment. When they did sell, it was to Vista Equity Partners, a private equity firm whose goal was to strip Citrix down to its bare essentials and combine it with TIBCO, which Vista acquired in 2014. According to some sources, TIBCO had been a disappointing acquisition despite investments at every level of the company. Combining the two companies enabled Vista to make significant cuts to both to “right size” the new company Cloud Software Group, creating more profit opportunities.

In contrast, the VMware sale to Broadcom was not driven by investors’ need to profit from the acquisition. VMware was operating as a standalone (and profitable) company. Instead, Broadcom’s purchase of VMware was driven by Broadcom’s desire to become an infrastructure technology leader for enterprise companies.

Which is also why Broadcom decided to divest itself of VMware EUC. As our blog post noted, the first hint was included in its November 2023 announcement of the completion of the VMware acquisition, stating “Broadcom's focus moving forward is to enable enterprise customers to create and modernize their private and hybrid cloud environments.” Plain and simple, VMware EUC simply did not fit with Broadcom’s strategy.

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Broadcom was motivated to sell VMware EUC quickly so it could concentrate on incorporating VMware’s data center technology into the greater Broadcom value proposition.

And, actually, VMware EUC was a pretty appealing acquisition prospect. The division was generating an estimated $2B per year in sales and a strong contender in the EUC space, with far less technical history and liability than Citrix. Additionally, with the exception of VMware Horizon’s integration with vSphere and vCenter, there were virtually no technical interdependencies that VMware EUC’s buyer would need to unravel. Also, VMware EUC’s intellectual property is far less vast and complex than Citrix, making it less distracting and far easier to manage, which will help the new company move forward easier and faster than Citrix/CSG.

Another comparison is the cost of each investment. Citrix was purchased for $16.5B; VMware EUC for $3.8B. The pressure to deliver on the investment is far less onerous on VMware EUC as it is on Citrix/CSG and will require far fewer cuts for VMware EUC than it will for Citrix/CSG.

And what about Horizon’s integration with vCenter and  vSphere? The integration was covered from a license perspective by including a vSphere Desktop license with Horizon at no extra charge to the customer. When VMware EUC formally separates from VMware, that will have to change.

Chances are that VMware started addressing the integration in 2022 when Broadcom announced the agreement to acquire VMware. If not, would KKR have agreed to acquire EUC if a technical strategy wasn’t in the works? Probably not. In fact, VMware EUC becoming a standalone company will probably pave the way to technology integrations with multiple partners and platforms that will make Horizon more appealing to more buyers.

How Will VMware EUC Move Forward?

Given all of the above, changes to VMware EUC could include:

• A new company name (this is a pretty good bet)
• A renamed product line
• Pricing adjustments in the short term to make the vSphere cost palatable
• Uncoupling of Horizon and vSphere licensing
• More R & D investment to create strategic technical partnerships that enable Horizon to run on more clouds with non-VMware hypervisors

The expectations are high. KKR has retained EUC’s existing management team for the new company to capitalize on their product and buyer knowledge, which will provide a head start.

Only time will tell.

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