VMware shells out eye-watering $1.26 billion for cloud start-up Nicira

Software giant VMware has acquired Californian cloud start-up Nicira for a staggering $1.26 billion, in a deal that is expected to have major ramifications for technologies in the sector.

Based in Palo Alto, Nicira was founded in 2007 by Martin Casado and Nick McKeown from Stanford University, along with Scott Shenker from the University of California.

Two years later, Steve Mullaney joined Nicira as the founding chief executive.

Nicira Networks aims to accelerate the transformation to cloud infrastructure by delivering software that virtualises and enables elastic, scale-out data centres.

It has been acquired by VMware, also based in Palo Alto, for $1.26 billion. The deal includes $1.05 billion in cash and $210 million in assumed unvested equity awards.

“Five years ago we started Nicira to transform [computer] networking,” Casado said in a company blog.

“It was clear that traditional [computer] networks were not suitable for cloud datacenters. So we set out to increase flexibility, reduce operational complexity, and provide full automation through software.”

Casado said Nicira has played a large role in bringing open networking to the cloud, with projects including OpenFlow, Open vSwitch and OpenStack.

“As we move to the future with VMware, we absolutely stand behind our commitment to contribute and even accelerate these projects going forward,” he said.

Casado said Nicira’s Software Defined Networking capabilities “fit hand-in-glove” with VMware’s server, storage and network offering in pursuit of the Software Defined Datacenter.

“As the two companies got together, we were delighted to discover that not only our vision for networking is aligned, but our technologies and roadmaps were complementary,” he said.

“Together we will be able to accelerate the delivery of a complete suite of software-defined networking products across all hypervisors and cloud stacks.”

Steve Herrod, chief technology officer of VMware, also expressed his happiness over the deal in a blog, saying he is “extremely excited” to announce the acquisition.

“Nicira… has pioneered software-defined networking and is the leader in networking virtualisation for heterogeneous infrastructure environments and clouds,” Herrod said.

“I believe we have the same opportunity to do for networking what we’ve already done for servers and many other parts of the datacenter.”

According to venture capitalist and Nicira investor Marc Andreessen, VMware’s acquisition of Nicira shows large companies are prepared to pay top dollar for cloud start-ups.

Andreessen described the deal as “one of the largest all-cash acquisitions of a private tech company”, and predicts more deals of this nature in the future.

“It’s really lit up. Activity is running very high,” Andreessen told Forbes.

“[Previously,] it was very common to talk to VCs and they’d say enterprise computing is dead… Whenever someone believes something is dead, that’s when something dramatic happens.”