451 CAOS Theory 
A blog for the enterprise open source community
Citrix acquires XenSource
Raven Zachary, August 15, 2007 @ 8:19 pm ETAs you have no doubt heard by now, Citrix announced its acquisition of open source virtualization company XenSource today for $500m (press release).
We issued a TechDealmaker QuickTake early this morning concerning this news entitled, “Citrix pays $500m for XenSource, squares off against VMware” (login required) by fellow 451 analysts William Fellows, Rachel Chalmers, Brenon Daly, and John Abbott. You can also read our take on the acquisition in three news articles: “Citrix Buying VMware Rival for $500M,” by Michael Liedtke (AP) posted on the San Francisco Chronicle website, “Will Microsoft Buy the New Citrix?,” by Peter Galli (eWeek), and “Citrix Challenges VMware with XenSource Buy,” by Richard Koman (CIO Today).
Regarding the analysis of this acquisition, I defer to my colleagues who follow this space more closely than I do, but I wanted to make a point about the acquisition price and to what extent this can be applied to the open source vendor community. The multiple that Citrix paid for XenSource was quite high – $500m based on $3m or less in annual sales (more than 150x). Should open source vendor executives be salivating at the future prospects, based on this multiple? No.
I think that it’s clear that the multiple is tied to XenSource’s product focus, virtualization, and not to the fact that Xen is released under an open source license (nor its existing customer base). This acquisition closely follows the VMWare IPO – virtualization is hot and there aren’t many players. Citrix wanted to play, and XenSource was one of a small number of virtualization M&A targets available. When looking at the multiples for recent open source acquisitions (e.g. JBoss and Sleepycat), there is a significant gap here. While this is exciting news for the XenSource founders, I don’t think the open source vendor community should get caught up in this excitement. It wasn’t open source that provided the 150x multiplier.
Comments (9) Categories: M&A,Software
[...] Raven has a more measured perspective and discusses the strategic aspects of the acquisition, which discounts the applicability of the comp to other Open Source companies. [...]
What the XenSource acquisition says about Citrix…
I was quite busy at work today so I’m only catching up on blog reading now. My arch nemesis has been busy
BTW, when do you do your day job? Can I get a job at Alfresco???? 
Kidding aside….Matt says: “$500 million is a hefty premium given Xen…
[...] Update: [...]
[...] Update: [...]
[...] Saying open source is incidental to Citrix’s acquisition of XenSource is like saying one would buy Red Hat and not care much about its role in the Linux kernel. Yet Matthew Aslett and Raven Zachary both suggest precisely this. [...]
[...] gets more interesting with XenSource deal Jay Lyman, August 16, 2007 @ 5:20 pm ET The purchase of XenSource by Citrix reinforces the direction for the Xen hypervisor and virtualization technology toward [...]
[...] get caught up in this excitement. It wasn’t open source that provided the 150x multiplier,” wrote [...]
[...] source vendors has been driven by the value extant in the open source model (although you could argue about XenSource) but what happens if and when open source vendors are acquired by a vendor in order [...]
[...] a virtualization company is easy, especially if you can pay an high price for it, retaining its community maybe a more difficult task, [...]