Software companies LogMeIn, Inc. (NASDAQ: LOGM) and Citrix Systems, Inc. (NASDAQ: CTXS) announced an agreement that will bring together Citrix’s Online division, known for its GoTo products, with LogMeIn to create a subsidiary called GetGo, owned by Citrix. But early next year, GetGo, which has the potential to generate $1 billion annual revenues, will merge with jackpot winner LogMeIn.
With Citrix Systems looking to narrow its operations, the deal, valued at $1.8 billion, was made as a Reverse Morris Trust transaction, to allow the company to sell Citrix Online and their lucrative GoTo business to LogMeIn in a tax-free and efficient manner.
Benefitting from an established clientele, over two million customers all over the world and in almost every country, GetGo will initially combine Citrix Online’s GoTo product line with the entire business operations of LogMeIn, before becoming a subsidiary of the latter company.
From ExpertCity to GetGo
In December 2003, Citrix acquired ExpertCity, a provider of remote desktop products, for $225 million. Citrix absorbed ExpertCity’s existing products GoToMyPC and GoToAssist, and ExpertCity became the Citrix Online services division of the company.
Under the software as a service (SaaS) and application service provider (ASP) software business model, Citrix Online sold Web-based remote access, support, and collaboration software and services. Beginning with GoToMeeting in 2004, the new division started introducing more GoTo services like GoToTraining, GoToWebinar, GoToWebcast, Podio, and OpenVoice.
Citrix Online was renamed Citrix’s SaaS division in 2014, and then Citrix Mobility Apps Business Unit in 2015. Later that same year, Citrix revealed plans to give the GoTo business a spin-off, allowing its remote offers and services to continue in a standalone subsidiary with a reported market value of around $4 billion. The move came after activist investor Elliott Management, which holds an 8% ownership in Citrix, urged the company, which has a market value of about $14 billion, to improve its profitability by selling assets, as well as cutting costs and jobs. Citrix approved 1,100 layoffs worldwide last year.
So, today, it was announced that the new subsidiary would be called GetGo, consisting of a merger between LogMeIn and Citrix Online. Bill Wagner, who succeeded founding LogMeIn CEO Michael Simon in 2015, will be at the helm of both the GetGo transition and the definitive LogMeIn-owned subsidiary. Its headquarters will be in Boston, Massachusetts, employing 3,000 people, and serving more than 2 million customers worldwide.
— Citrix (@citrix) July 26, 2016
A win-win affair for Citrix and LogMeIn
Citrix’s profitable GoTo family of products focuses on collaboration and communications. They facilitate online meetings (GoToMeeting), remote technical support (GoToAssist), remote access to computers (GoToMyPC), online training (GoToTraining), online events (GoToWebinar), online conferencing (GoToWebcast and OpenVoice), enterprise management (Podio), and virtual phone systems (Grasshopper). These leading remote services have earned GoTo a strong global brand recognition.
LogMeIn, the frontrunner in cloud-based connectivity, also makes similar software that allows users to collaborate remotely, popular for products like join.me, LogMeIn Rescue, BoldChat, and, most notably, their password management service LastPass. The company’s subscription-based annual revenue has barely doubled since 2012, reaching $272 million in 2015 and is expected to grow to $330 million this year. In comparison, Citrix generated GoTo-related revenues of about $600 million in the 12 months leading to September 2015.
GetGo will further benefit both Citrix and LogMeIn shareholders with expected earnings of $65 million in its first year and more than $100 million (approximately $130 million to be precise) in year two, potentially reaching annual revenues in exceeding $1 billion by the time it’s fully owned by LogMeIn.
LogMeIn latest move towards expansion
Founded in 2003, Boston-based LogMeIn began as a cloud-based remote software that provides remote services. But in recent years, the company targeted other markets through acquisitions like the $110 million purchase of LastPass, as well as investments in the Internet of Things business, which aims at providing network connectivity to everyday objects, allowing them to send and receive data.
However, LogMeIn’s biggest move came today as they reached a $1.8 billion deal with Citrix to acquire lucrative GoTo business, which until this point had been their biggest rivals in the remote services and products market. Citrix’s GoToMeeting, an online business meeting service, competition with LogMeIn’s join.me is one of many examples. Described by LogMeIn as “a leader with an enormous customer base and the most recognized brands in the industry”, Citrix will pass the baton to the Bostonian company.
The deal, which is expected to conclude in 2017, is projected to report to LogMeIn earnings of $1 billion that will certainly compensate their initial investment of $1.8 billion. During the first part of the transaction, Citrix shareholders will own 50.1 percent of GetGo, while LogMeIn shareholders will own 49.9 percent. GetGo will then merge with LogMeIn, becoming their most valuable subsidiary with a new name yet to be determined.
Meanwhile, Citrix has already moved on from GoTo products, focusing on application virtualization software like their recently released XenApp and XenDesktop 7.9.