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VMware’s VeloCloud Acquisition to Boost Its Cloud Platform

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Acquisition details

In order to enhance its networking technologies through its cloud platform, VMware (VMW) bought VeloCloud, a startup firm dealing with cloud-based wide area networks (or WAN). However, the financial terms of the deal were not disclosed.

This acquisition may help the company strengthen its virtualized networking platform with the inclusion of superior cloud-based WAN technologies. This allows its clients to run, manage, connect, and secure any application on any cloud to any device.

According to TechCrunch, this deal has also given VMware access to VeloCloud’s 1,000 clients, which include global carriers and large enterprises. AT&T (T), Sprint (S) Telstra, and Vonage also form part of VeloCloud’s client portfolio.

In the graph above, we can see the acquisition trend of VMware in the last five years. During the period, VMW invested ~$2.2 billion at an average of $448.0 million per year, which indicates that the company is expanding its market share and product capabilities through inorganic growth.

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Strong free cash flow driving acquisition

Strong free cash flow coupled with lower leverage acted as a strong catalyst for the company to continue with its acquisition goals. At the end of fiscal Q4 2018, VMware generated free cash flow of $748.0 million against $419.0 million in fiscal Q4 2017. The company exited fiscal 2018 with free cash flow of $2.9 billion against $2.2 billion in fiscal 2017. VMW maintained an average yearly free cash flow of $2.1 billion in the last five years. 

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