Security on the Move

VMware’’s acquisition of AirWatch keeps information safe on mobile devices

If Siri can tell you the best Italian restaurant within 10 miles of your current location and how to get to the freeway from a dirt road in the middle of nowhere, it seems obvious that she can also bypass your phone’s lock screen, leaving information like e-mail, text, and voice mail exposed. Not only do smartphones come with these inherent risks, but as more and more companies implement bring-your-own-device policies, IT professionals are tasked with ensuring the security of their companies’ proprietary data across many different operating systems, firewall technologies, applications, and user capabilities.

Those are just a few of the issues that companies like AirWatch tackle. AirWatch employees attempt to solve the problems that result from an increasingly mobile device- and data-driven world, which is why a company like VMware is interested in acquiring that expertise.

In the first quarter of 2014, VMware, a $5.2 billion provider of cloud and virtualization software and subsidiary of EMC Corporation, acquired AirWatch, an enterprise mobility management and security provider and developer of the Secure Content Locker, for $1.54 billion ($1.175 billion in cash and approximately $365 million in installment payments and assumed unvested equity). As of July 2014, it was regarded as one of the largest technology company acquisitions of the year.

The need was clear. Technology research advisory firm Gartner projected the mobile device management (MDM) market would grow to $1.6 billion in 2014 from approximately $784 million in 2013, which reflects just 30 percent penetration of the North American market. In a paper titled, “The 10 ‘must-haves’ for secure enterprise mobility,” leading software company Citrix stated, “Today’s organizations need a solution that provides them with tools to pro-actively monitor, control and protect the enterprise from end to end—across devices, apps, data and the network.”

But why acquire AirWatch, out of all the companies in this burgeoning field? “It was a combination of their technology, business leadership, and strong global customer base,” says VMware’s general counsel, Dawn Smith.

The company’s growth was also a positive factor for VMware. Revenue for AirWatch, which was founded in 2003, was reported between $85 and $100 million in 2013 and had been growing at nearly 40 percent every quarter. In the previous three years, it had expanded from 150 to 2,000 employees and boasted more than 14,000 customers in 150 countries. In 2013, it secured $200 million in one of the largest Series A technology funding rounds in history. InfoWorld called AirWatch “one of the very few MDM vendors that actually matters.” It was recognized as a leader in both “ability to execute” and “vision” in the 2014 Gartner Magic Quadrant for Enterprise Mobility Management, and it won the same accolades the previous four years.

Even with all of these commendations, VMware chose to conduct its own extensive research. The legal team consists of 131 employees, including 90 lawyers, and was involved from the beginning to plan the deal and negotiate the terms. Smith spent two months at AirWatch’s headquarters in Atlanta evaluating the company’s business practices and culture. She wanted to see for herself how employees felt about their products, treated their customers, and interacted with each other. “We discovered they are as passionate about their business as we are about ours and have the same impeccable standards we do when it comes to the quality of their products,” Smith says.

Smith’s education and experience is broad and prestigious: she studied engineering at the Naval Academy, worked seven years with the Naval Nuclear Propulsion Program, and spent nine years at the law firm Wilson Sonsini, which focuses on the technology industry. Still, she says, there’s always a lot to learn when taking on a new niche. She spent time educating herself about the mobility landscape and the types of patents and lawsuits it tends to generate, including a patent infringement suit filed against AirWatch by Good Technology in November 2012; the case is scheduled to go to trial this summer.

In the course of the legal team’s investigation, Smith didn’t discover any risks VMware wasn’t willing to tackle. She was so impressed with what her team found that she and her colleagues decided to keep the leadership team in Atlanta intact. “We didn’t want to do anything to get in the way of their success,” Smith says.

The decision to treat AirWatch as a partner rather than simply an acquired asset is part of an overall trend underway throughout the industry. High-tech companies are looking for partners. According to Mergermarket, technology mergers and acquisitions were 122 percent higher in the first half of 2014 than in 2013. Most of the IT companies playing the acquisition game are not only beefing up their core products and services, but also expanding into new lines of business, so they can offer a more complete palette of services and become one-stop shops for their customers. “We want to offer our customers suites of products to give them everything they need to provide best-in-class IT services to their employees,” Smith says. “We want to make sure their total environment (i.e., desktop computers and mobile devices) is integrated and secure. Getting these services from one provider is more cost-effective than going to a lot of different vendors.” VMware joins other giant vendors that have recently snapped up mobility solutions—Citrix bought Framehawk and Zenprise, and IBM bought Fiberlink and Maas360.

The acquisition reflects an overall industry trend, but it also highlights VMware’s tendency to be irrepressibly disruptive. “VMware started out changing the server universe by tricking computer servers into running multiple operating systems, thus reducing the number of servers needed, saving hardware costs, energy, and lots of money,” Smith says. “We want to continue to rock the boat across networking, storage, management … every aspect of IT, to simplify our customers’ lives and make them more agile and profitable.”

Though this was the largest acquisition in VMware’s 16-year history (jumping ahead of its $1.26 billion purchase of Nicira in 2012) and its first major deal outside Silicon Valley, it’s not the largest acquisition in which Smith has participated. Smith was involved in larger deals, based on pure dollar amount, during her years in private practice. However, she says this topped them all in terms of personal satisfaction. “As a shareholder with fiduciary responsibility, I felt much more responsibility to the management team, employees, shareholders, and customers,” she says. “And I was more invested in a successful outcome.”

Smith’s experience is key for VMware, but her enthusiasm and interest in mergers and acquisitions is also beneficial because it doesn’t look like VMware is slowing down any time soon. It has launched a number of new products—AirWatch Chat and the VMware Workplace Suite, to name a few—and recently strengthened partnerships with Lenovo, Hewlett-Packard, Docker, Google, and Pivotal. “We can’t help it,” Smith says. “Innovation is in our DNA. It’s always on our mind.”