Thursday, February 8, 2007

As Predicted, VMware will IPO in 2007

In October, 2006, I wrote the article, "VMware as LBO Opportunity for EMC?" The article examined the impact that the VMware acquisition has had on the EMC bottom line and speculated on some ways that EMC could benefit its shareholders by spinning out the EMC asset with an IPO in 2007.

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:

All told, however, this is certainly an IPO that anyone would want to be a part of...

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3 comments:

  1. You are just too clever!! A great blog post, thanks for the update.

    Esmart

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  2. [...] In February of this year, EMC and VMware announced that they would sell about 10% of the company in an IPO to happen this summer. Great minds think alike — and ours too! I wrote about that here. [...]

    ReplyDelete