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How the CloudHealth Acquisition Could Help VMware

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About the deal

To boost its cloud-related software services, VMware (VMW) has set out to buy startup company CloudHealth Technologies. The financial terms of the deal haven’t been disclosed, but according to Reuters, the acquisition will cost ~$500 million.

The deal is expected to be completed in VMware’s fiscal third quarter of 2019. After the successful completion of the transaction, CloudHealth’s services will be integrated with VMware’s existing Wavefront, Secure State, and Cloud Automation platforms, offering automation, compliance, security, insights, and analytics to its clients.

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Adding value to VMware’s cloud strategy

The acquisition will provide multicloud management support to VMware’s customers across different cloud platforms, including Amazon’s Amazon Web Services (AMZN), Microsoft Azure (MSFT), and Google Cloud (GOOGL). The company’s streamlining of different cloud services may help its clients analyze and save on cloud costs, drive efficiency, and improve security from a single interface. It also offers enhanced customer management and detailed billing methods.

The deal will also allow VMware to gain access to nearly 3,000 CloudHealth clients, which include Yelp (YELP), Dow Jones, Zendesk (ZEN), Skyscanner, and SHI.

Past acquisition

To enhance its networking technologies through a cloud platform, VMware also bought VeloCloud, a startup company dealing in cloud-based wide area networks (or WAN), in December 2017. The acquisition could help the company strengthen its virtualized networking platform via the inclusion of superior cloud-based WAN technologies. This improvement should allow its clients to run, manage, connect, and secure any application on any cloud to any device.

VMware’s strong free cash flow allows it to strengthen its cloud services through acquisitions. In the graph above, we can see VMWare’s free cash flow growth over the last five quarters.

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