Ivanti acquires Cherwell. What's the strategy?

We interrupt your scheduled reading to bring you breaking news.

One technology company acquiring another isn’t necessarily worthy of writing about. But trying to understand this deal through the lens of competitive strategy is a puzzler that I thought might be worth writing and to recall a year ahead once the future is written.

Ivanti (formerly LANDesk) have acquired Cherwell for an undisclosed sum. Because both companies are privately owned, it’s hard to understand exact numbers, but here is what can be found through public information.

• Cherwell Software has 500 employees [LinkedIn] and has a valuation in the $500m to $1bn range based on a funding round in 2019 [Crunchbase]

• Ivanti has 1,500+ employees [LinkedIn] and is valued at more than $2bn

• Ivanti generated $450m of annual revenue in 2020, and the new CEO Jim Schaper stated a goal of growing revenue to $1.5bn annual revenue in 5 years.

• Since Schaper took the helm at Ivanti, the company has made two acquisitions aside from Cherwell: MobileIron [$872m] and PulseSecure [undisclosed value]

What do these companies do? And why is this acquisition a competitive strategy headscratcher?

Both Ivanti and Cherwell exist in the same market, selling to business leaders that need technology capability. Further, they both sell to the same CIO persona that leads the capability of Managing Information Technology (7.0 in the APCQ map below).

Neither has a big footprint outside of those parts of a business.

Based on their marketing, this is the product set from Ivanti.

And from Cherwell

So Cherwell offers its customers a subset of the capability that Ivanti does. Fair enough, it is a smaller company with a smaller product set. But almost all of the features of Cherwell compete with Ivanti rather than sell more to the same buyer.

Although selling Enterprise Technology to the CIO is not a zero-sum game typically a company only procures one vendor's capability.

Here’s how they compete in the same Service Management marketplace

(I used the 2019 Gartner quadrant which was more readily available to download)

Why would the number 4 competitor buy the number 3 competitor? I think there can only be two theories:

1. Ivanti needs product capabilities that it doesn’t currently have, and acquiring them is cheaper than building. Ivanti customers will benefit from Cherwell technology, and the increased revenue will pay for the acquisition and then take Ivanti closer to its goal.

2. Ivanti is buying the customers from Cherwell, intend to migrate them to their platform and hopes that the future revenue from those customers will pay for the acquisition and further advance towards the future revenue goal.

Theory number 1 doesn’t make sense as Cherwell is almost a complete subset of Ivanti from a product point-of-view. Both companies use different technology stacks.

Theory number 2 makes more sense - Buy Cherwell for the revenue. But in the press release, Schaper says that Ivanti will maintain and develop both sets of technology.

Does Ivanti see an opportunity to improve the Cherwell product by adding their capabilities to it? For example, the AI capabilities of Neuron would fill a gap in the Cherwell product suite. By why improve a competitors product, even if you own that competitor. You’re eating your own lunch.

Where does this leave Cherwell customers? I would be worried that future development would take a new direction under new ownership. I would be more worried that Cherwell will be quietly put to rest and forced migrations to Ivanti are on the cards.

Where does this leave Ivanti customers? The war chest that the company has to increase the value to its customers has been spent on buying a smaller competitor.

Did any Ivanti customers wake up and punch the air at this acquisition? Excited about the possibilities for them. Presumably, Ivanti customers discounted Cherwell at the point they bought into the technology.

It’s a competitive strategy headscratcher, and I’ll be reading this article back this time next year to see what happens.