Looks like I was pretty close to right on this call.
Yesterday, EMC announced that they will sell approximately 10% of VMware in an IPO to happen sometime in the summer of 2007.
Just as it was a smart move for EMC to acquire VMware back in early 2004, this is also a smart move on their part. And I'm not just saying that because I thought it was a smart move last year. Well, OK, I am saying that (a bit). Briefly, it's smart because:
- EMC shareholders will see increased shareholder value. The positive uptick has started already, as EMC gained 6.62% in the first day of trading after the announcement. Witness:
- VMware, as a separate and public entity, will be better positioned to offer transparency to their shareholders.
- VMware will be much better able to attract, reward, and retain the key talent they will need to ride the Virtualization market as it blossoms over the next 10 years.
- EMC retains 90% ownership of the public entity. So, if the Market Cap of VMware hits $20B in 5 years, then EMC is sitting on an $18B gold mine. Of course, we'll know much more when we see the S1. The high-level breakdown of the cap-table will tell us what's left for recruiting and acquisitions.
So, let's do some more speculation. I reported on VMware's Q42006 numbers earlier. They did $232M in revenue in Q42006, total revenues for 2006 of $709M, and EMC is projecting $1.2B total revenues for 2007. Since their CAGR numbers are astronomical, I'd be comfortable pricing them right now at 4x forward revenues, or about a $5B Market Cap (give or take $1B). If EMC sells 10% of the company, we're looking at a $500M IPO. This move could very well jump-start the IPO market for high-tech companies back into existence.
The only downside to this that I can find is that the company will not truly be held by the public. We just get to join along for 10% of the ride. I would much prefer that Joe Q. Public had a larger stake in any public entity.
Other interesting blog coverage includes:
- Phil Jones of Information Age, VMware IPO to Boost Virtual Market
- SEC Investor, EMC to Spin Off VMWare Unit
- Ashlee Vance of The Register, EMC tries to appease investors with VMware IPO
Note: The Register also called this move back in November.
- TechNet, VMWARE IPO
- ChipX86, VMware IPO news
- Gordon Haff of Illuminata, EMC Looks to Have It Both Ways
All told, however, this is certainly an IPO that anyone would want to be a part of...
Tags: VMware, EMC, IPO, Private Equity, Brian Berliner, brianberliner