Private equity firm KKR scooped up VMware’s old end-user computing assets
The firm says it plans to invest in growth and R&D
The deal is expected to close this year
When Broadcom closed its VMware acquisition late last year, there was plenty of speculation about which assets it would keep and which it would scrap. Flagged at the time as one of the vulnerable units, VMware’s End-User Computing (EUC) Division may have just found something of a happy ending.
Private equity firm KKR scooped up the EUC division this week for a cool $4 billion and has said it plans to invest in R&D, new strategic partnerships, go-to-market functions and other growth initiatives. Shankar Iyer, SVP and GM for the unit at Broadcom and a 10-year VMware veteran, and the rest of the division’s existing management team will stay on to lead the newly independent business.
The deal is expected to close sometime this year.
“There’s never been a better time to take what we’ve built and give it the dedicated focus it deserves,” Iyer wrote in a VMware blog.
“With continued and enhanced investments in our business, technology, and global ecosystem, we are confident that the pending acquisition will be a powerful benefit for our customers and partners,” he added.
Meanwhile, KKR also said it plans to implement an employee ownership program, which will make employees partial owners of the business alongside KKR. Not too shabby, especially compared to getting the axe.
At VMware and subsequently Broadcom, the EUC division was responsible for digital workspace products like Horizon and Workspace ONE.
The business is a neat fit for KKR, which has a track record in the tech and communications space. The firm has investments in companies ranging from U.S. data center provider CyrusOne and fiber ISP MetroNet to Indian tech giant Jio Platforms and Spanish telecom MasMovil.
All that is to say, the deal isn’t entirely out of left field for the firm. It also means KKR likely has a range of existing business relationships it can tap to help the EUC business grow.
We reached out to KKR to find out how much growth capital it plans to put behind the EUC division as well as which relationships it might leverage. We also asked whether it might have taken a shine to any of VMware’s other business units. We’ll update if we get a response.
Writing on the wall
Back when the VMware acquisition closed in November, Gartner Distinguished VP Andrew Lerner told Silverlinings he believed Broadcom would “provide ample investment” in VMware’s Cloud Foundation suite (including vSphere and Aria), as well as its VMware Cloud, SD-WAN and Tanzu portfolios. He noted, though, that Broadcom had been suspiciously quiet about its plans for the EUC division.
Lerner concluded that Broadcom would “limit future investment in (and/or rationalize) a small number of VMware products/initiatives” with uncertainty specifically hovering around VMware’s “EUC suite, Tanzu Application Service (formerly Pivotal Cloud Foundry) and the Spring development platform.” Turns out he was right.
Bola Rotibi, chief of enterprise research at CCS Insight, told Silverlinings the sale is kind of a best case scenario for EUC because "KKR does have a strong track record with good investments and administration of the businesses it acquires. But also importantly, it allows VMware EUC to have the right focused investment that it needs. Its market is still relatively buoyant."
So, are any other units on the chopping block?
Rotibi named Carbon Black as the next in line "once a suitable purchaser has been found." She added other parts of the portfolio could also end up being offloaded down the line "if it becomes clear that are found not to fit with what customers are looking for or adds to the simplified product solution strategy the company is pursuing."
Analysts also predicted impending layoffs back in November, which began…almost immediately after the deal closed.
Though Broadcom has kept a number of VMware businesses thus far, it appears less interested in preserving reseller partnerships and certain products. According to one insider, these have unceremoniously received the chop with no notice. Broadcom also changed up its pricing structure, much to the chagrin of customers.
Check out the latest on VMware here.
Update 2/28/2024 4:15 pm ET: This story has been updated to include comments from CCS Insights' Bola Rotibi.
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