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SpringSource Acquired by VMware for $420 Million

August 10, VMware announced a definitive agreement to acquire SpringSource. VMware and SpringSource plan to deliver compelling new solutions that enable companies to more efficiently build, run and manage applications within both internal and external cloud architectures. ”Today’s modern computing environments are moving to an application and data-centric world powered by state of the art virtualized and cloud computing platforms,” said Paul Maritz, president and chief executive officer, VMware. “The combination of SpringSource and VMware capitalizes on this shift and places us right at the intersection of the most important forces in the software market today – virtualization, modern application frameworks and cloud computing.” VMware will acquire SpringSource for approximately $362 million in cash and equity plus the assumption of approximately $58 million of unvested stock and options. The acquisition has been approved by SpringSource’s stockholders and is expected to close in the third quarter of 2009, subject to customary closing conditions.

This is an expensive acquisition for VMware… even if the company is rich. Its GAAP net income for the full fiscal year 2008 was $290 million for revenues of $1.9 billion. You can compare this to the estimates of SpringSource revenues that are between $10 and $40 million. Basically, WMware is spending more than its full 2008 income to acquire a company at more than ten times its current revenues. The rational behind this is to create the ultimate “Java in the Cloud” infrastructure. In the SpringSource blog , the CEO of SpringSource Rod Johnson wrote “Combined with VMware’s vSphere and other cloud-enabling technologies, we can innovate in frameworks and infrastructure to deliver a joined up experience. SpringSource application frameworks, servers and management software can give the VMware platform eyes and ears throughout the stack, allowing it to apply its uniquely advanced ability to migrate workloads and manage VMs for maximum efficiency and minimal hardware resource cost. SpringSource rapid development frameworks and tooling can provide developers with the ability to move from code to cloud in minutes. All of this with the quality you can expect from both companies, and the ease of use you can depend on from Spring technologies.”

I view this acquisition as a risky bet on the future. The market of applications as services on the net is still in its infancy and it is difficult to have a good estimation of its potential…. except if you are an industry analyst wanting to sell an expensive report on how to profit from it ;o) This area is already crowded with a lot of competitions and some of the players (Amazon, Google or Microsoft) have also deep pockets and technology competencies. It could be also a problem for VMware as its software works on operating systems of other companies that could now see it more than a competitor.

In those that will benefit from the deal, I see primarily the SpringSource customers that should see their solution backed by a more financially strong company…. if the major brain resources will stay in the company (see how the core JBoss team exited the company after its acquisition by Red Hat) and keep some focus on existing products rather that being engaged only in creating the new cloud solutions. I think also that the Java community could be happy to have another major player that has interest in the evolution of the technology after Oracle acquired Sun. Finally, there are some happy venture capitalists like Benchmark Capital which invested $10 million in 2007 and participated to a $15 million financing in 2008.

In the camp of the losers, we can put competitors like Red Hat. Its JBoss division is now going to find a more important competitor if the SpringSource servers are backed by a larger competitor based on the same open source model.