Raven Zachary, Research Director at the 451 Group along with Brenon Daly, just released a brief on open source mergers and acquisitions, "Open Source Q&A comes of Age". 

Their summary indicates a considerable growth trend:

After several years of mostly one-off deals, open source deal flow took off in 2007, setting a new record for M&A in the sector. We tallied 30 open source transactions in 2007 – twice the number in 2005 and up substantially from the single-digit number of transactions in the early2000s.

Read the full story

Technorati Tags: 451 Group, Acquistitions, Citrix, EnterpriseDB, Mergers, MySQL, Open Source, Oracle, Raven Zachary, Red Hat, Sun, Xensource

VMware announced the release of VMware Server 2 last week. Which is a free (as in beer, not freedom) follow-up (for free offerings) to their VMware Player that was released two years ago this December. This is an interesting turn of events as the VMware Server was a premium offer and now looks to be available for no licensing fees. I wonder if there decision had anything to do with upstart open source Xensource (which was acquired by Citrix) offering a free and open source virtualization server, Xen.

In all fairness to VMware, Xensource has a long way to go to match the capabilities of VMware products which got their initial foothold in testing labs and have quickly become a popular solution for server consolidation. From my experience though people tell me that they are using VMware primarily for testing  or Windows server consolidation.

The other notablething about the free VMware virtualization offers are that while VMware offers a free version for download they don’t offer an open source version of their products.

Can the ability to see the code and lack of limitation on redistribution give Xensource the advantage they need to close the gap between themselves and VMware? I think this will be one technology sector to prove the theorem that flexibility not cost is the differentiating factor for open source software.  Otherwise, we might as well bring back shareware. 

Technorati Tags: Citrix, Virtualization, VMware, Xensource

Dell announced the acquisition of EqualLogic tonight for a pittance… $1.4 billion. The storage virtualization vendor is the biggest acquisition in Dell history:

Under the terms of the agreement, Dell will purchase EqualLogic for approximately $1.4 billion in cash. The acquisition of EqualLogic is expected to close late in the fourth quarter of Dell’s fiscal year 2008 or early in the first quarter of fiscal 2009. The company expects the acquisition to be dilutive to earnings per share, excluding the amortization of intangibles, by $0.02 to $0.05 in aggregate for Fiscal 2009 and Fiscal 2010. The acquisition has been approved by the board of directors of each company and is subject to regulatory approvals and customary closing conditions.

EqualLogic was planning on going public and according to their filing they only made $68 million in revenue last year. That’s a purchase price of 21 times revenue. It’s also been a good year for acquire-es in open source business with a 50-500x acquistion of Xensource and a 60x revenue acquisition of Zimbra . However, it’s amazing to me that we can see so many acquisitions at 20x revenue and up. Maybe it’s my background as a financial guy that makes me go…hmmm.

As I look at these acquisitions I wonder over what time period they will be considered success. If you use a multiplier of 10X revenue for that business that was acquired (which is still generous) that means Dell would have to realize at $140 million in revenue from EqualLogic to recoup their investment in increased stock valuation (which would be diluted in their hardware-centric business so even then it’s not a  great measurement). That would mean Citrix would have to realize $50 million in direct revenue from Xensource and Yahoo! would need $38 million from Zimbra. Maybe you would have to wait until that business threw-off revenue to recoup the purchase price as the measure of success which would take even longer.

I can see EqualLogic enabled by the Dell channel seeing the quickest ROI but I have to wonder over what period we will see Xensource and Zimbra pay-off. On the other side maybe that’s the only way software behemoths can grow and in their case it might be worth it. Food for thought.

Technorati Tags: acquisitions, Dell, EqualLogic, financial, Xensource, Zimbra