First thoughts on VMware EUC sale to private equity firm KKR

Broadcom's sale of VMware EUC to private equity firm KKR will likely mean big changes, but the deal shouldn't be compared to Citrix's sale to Vista. Here's why.

News that Broadcom intends to sell VMware's End-User Computing business unit, which consists of VMware Horizon, VMware App Volumes and VMware Workspace ONE, to private equity firm KKR raises a number of questions.

Though I've tracked the EUC space for decades and even wrote about the expected sale, it's difficult to form a complete opinion on events like this in such a short time, but I want to share some of the thoughts and questions that have come to mind since reading the news.

In short, this deal feels different than Vista Equity Partner's acquisition of Citrix in 2022, even though both deals involve a private equity firm. While it's easy to take the doom-and-gloom approach -- there are, after all, a lot of questions that the new version of VMware EUC will have to answer very quickly -- it's entirely possible that this could wind up being a good thing all around.

One of the first questions surrounding the news is, who is KKR? The global firm has an extremely diverse portfolio of investments and acquisitions and is famous for its acquisition of RJR Nabisco in the late 1980s.  

While they don’t appear to be super active in end-user computing, they have one extremely notable property in Alludo, which is the parent company of Parallels.  

Parallels makes a desktop virtualization platform called Parallels RAS, as well as Parallels Desktop, which is the only client hypervisor that Microsoft supports to run Windows in a virtual machine on a Mac. While there’s no mention of Parallels in the press release, this connection is noteworthy. More on that later.  

KKR-VMware EUC vs. Vista-Citrix 

It's easy to look at this deal and compare it to Citrix's acquisition by Vista and Evergreen Coast Capital to form Cloud Software Group. You might think, "VMware EUC got sold to a private equity firm. We know how this is going to go." The assumption is mass layoffs and huge product and operational changes. While any acquisition like this is bound to bring change, the degree of that change depends on the business and the circumstances that led to the transaction.

With that in mind, let's look at a few key elements of the Citrix and VMware EUC deals, starting with why they happened in the first place.

VMware EUC was stranded

Broadcom showed zero interest in VMware's EUC business during the lengthy run-up to closing the acquisition deal in November 2023. At around $2 billion in revenue, EUC was a small piece of the overall pie and it simply never had a home at Broadcom. Sure, if it had been insanely profitable they might have been more inclined to keep it, but the reality is, VMware EUC never fit into Broadcom's core plans. That is the primary reason it is being sold off.

At Citrix, activist investors spent years acquiring seats on the board and forcing countless changes across the organization. They aimed to make it more profitable and prepare it for acquisition. They eventually took complete control and sold the company off to a private equity firm with the ultimate goal of stripping the company down to nuts and bolts. They even hired former Broadcom executive Tom Krause, known for his strict devotion to the bottom line when onboarding acquired companies, as CEO of the newly-formed Cloud Software Group.

Citrix was acquired for 4-times what VMware EUC sold for

VMware EUC is being sold for $3.8 billion -- less than a quarter of the value of the Citrix deal, which clocked in at $16.5 billion. Citrix had more revenue, of course, but are there other reasons there is such a huge difference? More importantly, what does that mean for VMware EUC?

First, the entire goal of the Citrix deal was for investors to maximize their investments in Citrix. In fact, they spent many years repositioning it as a security company, or a cloud-first company, or as a data and analytics company, trying to find the right suitor.

Broadcom, on the other hand, was left holding the bag on VMware EUC, a business unit its leaders didn't want. They were incentivized to move fast and get rid of it. It's also worth considering that the financial market is quite different today than when Citrix was acquired, with money being harder to come by since interest rates are higher -- but I'm not going to pretend to know anything more than that.

Second, Citrix brought with it a lot of other intellectual property -- and technical baggage -- which was immediately addressed by parsing the company into separate business units that could no longer depend on subsidies from the core Citrix desktop virtualization business. The price tag for Citrix included Citrix Virtual Apps and Desktops, but also Endpoint Management, XenServer, NetScaler and ShareFile, among others.

Alternatively, VMware EUC is easier to unravel, even though there are some dependencies on vSphere and the VMware Cloud Foundation ecosystem that need to be addressed. While Horizon being tied to vSphere was a good thing at one point, it certainly has an effect on the overall value of VMware EUC as a standalone product.

Different transactions, different expectations

Nevertheless, the relative acquisition costs for Citrix and VMware EUC translate to different expectations from their investors. Cloud Software Group no doubt has high expectations to deliver a return on the $16.5 billion that Vista and Evergreen contributed to buy Citrix -- not to mention the $4.3 billion they paid to acquire TIBCO, which merged into Cloud Software Group. Short of a manifold increase in revenue, the only way to get a return on that investment is to drastically cut operational costs.

VMware EUC, on the other hand, brings an estimated $2 billion in revenue into a new company that was purchased for just $3.8 billion, which means the pressure from KKR to recoup their investment is likely going to be far less than what Citrix has experienced. This, coupled with the relatively uncomplicated collection of intellectual property that VMware EUC brings to the table compared to Citrix, makes it conceivable that, with minimal touch -- at least compared to other deals -- VMware EUC can be a valuable piece of KKR's portfolio, and maybe even go public again.

That said, there are some complications that come with separating VMware EUC from the rest of VMware, so let's take a look at those.

Burning questions

While there will certainly be more questions in the coming weeks and months, three things come to mind that VMware EUC leaders need to address as fast as possible to keep customers and partners comfortable, show that this next chapter will be exciting and to maintain momentum.

What will happen with Horizon licensing that includes vSphere?

Most often, Horizon is sold with an stock-keeping unit (SKU) that includes VMware vSphere Desktop, meaning a Horizon customer does not need to buy any additional vSphere licenses for the purposes of delivering virtual apps and desktops. This will have to change when VMware EUC becomes a separate company.

What does this mean for customers and partners, many of whom are already frustrated with the changes Broadcom is making to vSphere licensing? What can VMware EUC leaders do to assuage concerns from customers that are worried they'll have to pay significantly more for the combination of Horizon and vSphere than they had to pay when vSphere was part of Horizon?

No doubt, it's something they are thinking about already. SKUs already exist that do not include vSphere Desktop. Some customers run workloads natively in Azure or on vSphere environments where the vSphere licenses are already purchased as part of an enterprise agreement or are built into the service -- like with Azure VMware Solution or VMware Cloud on AWS. So, in a way, we already know what Horizon costs without vSphere. The question then becomes "What will the vSphere cost be?"

In the short term, I'd expect an explanation from the new company on how this will be handled. Hopefully they've already worked out a deal with Broadcom to minimize the impact on customers.

Longer term -- but not too long -- I expect to see Horizon decoupled entirely from vSphere. Customers might still have the best overall experience when its used with vSphere, but I expect the existing momentum of running Horizon on native cloud workloads to extend to other on-premises or hybrid hypervisors, too.

How will VMware EUC's platform purchases and partnerships change?

Historically, Horizon and Workspace ONE have been sold as platforms for customers to invest in. This results in a more or less zero-sum situation where if you invest in Horizon, you're likely not invested in any other platform, or if you're a Workspace ONE customer, you're not using Intune or SCCM. While there have been some alliances over the years, such as Horizon Cloud and Azure Virtual Desktop (AVD), even that doesn't mean Horizon runs in AVD -- it just means that customers can access the features of AVD when they deploy their own instance of the Horizon Cloud platform. Contrast this to Citrix or Nerdio, each of which partners more closely with Microsoft in various ways.

One of the reasons for this, I think, is that VMware Cloud Foundation was a common thread running throughout the company. That will no longer matter when VMware EUC is a separate company. Does that mean that Horizon and Workspace ONE -- and, to a lesser extent, App Volumes -- will be freer to integrate and cooperate directly with alliance partners? Or will the coopetition vibe remain?

I suspect the answer here is "all of the above," at least for the time being.

Horizon has a lot to offer that customers could benefit from if it was sold as a sort of add-on or overlay on top of other platforms, rather than as a platform itself. Perhaps this will happen as part of its decoupling from vSphere. I plan on writing about this in a future article, so stay tuned for more on that.

The Parallels Connection 

While I missed this at first, the fact that KKR also owns Alludo, the company that owns brands like Corel, WinZip and most importantly, Parallels, is very interesting. It’s worth emphasizing, though, that the press release made no mention of Parallels, and stated very clearly -- and perhaps carefully -- that, “Upon closing of the transaction, the EUC Division will become a standalone company.” 

With that in mind, we can probably close the book on VMware EUC joining Alludo, but the possibility remains that Parallels could be sold to the new, standalone company. Again, no mention of this was made, but it’s easy to see the alignment. I plan on digging into this more in the coming weeks. 

New company, new name, new brand

Finally, though I've been using the name VMware EUC throughout this article, the reality is that there's a new name and brand coming. I've recently written about 22 other vendors in the desktop virtualization space and many of the names on those lists are new to people. To keep momentum, raise awareness and increase confidence, the new VMware EUC will have to hit the market with a loud, strong message about the future of the company and the product lines.

As usual, I feel like there are more questions than answers, but I can't help feeling different about VMware EUC's situation than I did about what happened to Citrix. While at the highest of levels, the fact that two companies that were stalwarts of the VDI landscape throughout the 2000s and 2010s are no longer what they used to be is interesting, but that's more a sign of the times and the changing tides of IT than anything else.

When you take a closer look, VMware EUC's journey to private equity couldn't be more different than Citrix's. And though we can expect some changes and cuts as we would with any other acquisition, I get the sense that VMware EUC's path is different than Citrix's, and that there's a light at the end of the tunnel that isn't an oncoming train.

Gabe Knuth is the senior end-user computing analyst for TechTarget's Enterprise Strategy Group. He writes publicly for TechTarget in addition to his analyst work. If you'd like to reach out, see his profile on LinkedIn or send an email to [email protected].

Enterprise Strategy Group is a division of TechTarget. Its analysts have business relationships with technology vendors.

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