BMC-CDB Merger: The Magic Is in the Process

Rob Enderle
Slide Show

Eight Critical Factors for Business Success

Earlier this week, BMC announced the acquisition and merger of CDB. It didn’t buy the company, though, it bought the assets and hired most of the people. This is the second time I’ve seen BMC follow this unique acquisition process, which has some distinct advantages over the more normal process of buying the entire company. This acquisition is focused on improving BMC’s DB2 tools, but it is the process that is more interesting than the product.

Let me explain.

The Problem

The problem for BMC was that CDB had a number of tools in the IBM DB2 space that were clearly better than what BMC had. The problem for CDB is that a very small company has a great deal of difficulty selling to a typical DB2 customer. These customers tend to be very large companies, and companies in this class tend to focus as much or more on the company than they do on the product because they don’t want to be left hanging if the firm fails or can’t step in and support what it sold. This is often the problem with small firms that start in this space; they have really good tools, but they don’t have the size or sales and support resources to sell into the space.

CDB had the tools that BMC wanted and BMC had the size and capability that CDB needed, setting the foundation for an acquisition.


Buying the Company

The problem with buying a company is that you get a lot of stuff you don’t want. If you are going to do an integration merger, where you take the acquired company and blend it into the acquiring company, the process is very disruptive and fails more often than it succeeds. This is because you are constantly fighting resistance between the processes and policies of the acquired company and the acquiring company, and dealing with unexpected problems discovered after the acquisition in the acquired company.

One of the ways around this is to use Dell’s acquisition process and leave the acquired company alone, letting it continue as an independent entity. But that process doesn’t work if you are going to blend the acquired company’s offering into an integrated product offering, as BMC intended. High integration is very difficult between very different entities.

Buying the Assets

When you buy the assets of the company and hire the employees, you get a completely different result. First, you leave behind any operational problems with the acquired company. They may form a distraction for some of the executives you hire, but that is their problem, not yours (though you do need to make sure it doesn’t become too big a distraction). Rather than taking all of the employees and then having to lay them off (which can be a very divisive and painful process, alienating both the laid off employees and those you want to keep), you selectively hire the folks you need. This allows you to evaluate each employee up front and assess whether they will work out or not, reducing the risk of having a lot of new employees who really don’t want to be working for you and are spending too much time looking for new jobs (retention with acquired company employees is often problematic).

This also helps you to identify the critical human assets surgically and to put in place, if you need them, custom compensation programs that keep them with you and keep them focused on what you need them to do. You sidestep the process issues because these people enter the firm as new individual employees, expected to use the processes in the company that hired them. Any changes to the acquired company’s processes are done like any other suggested improvements, in a measured and less rushed fashion.

Collaboration

The end result: You better identify and protect the assets you bought, avoid many of the problems associated with the parts of the company you didn’t want anyway, and end up getting to the value of the acquisition much more reliably and much faster.

Wrapping Up: Best Practices

I’m fascinated by how many best practices seem to be ignored by different vendors. It is almost as if there is some ego thing where executives look at what someone else is doing and refuse to do it because, in their head, it makes them look weak. Dell sets the standard in acquiring companies and getting the best results from the entire acquisition but leaving the company intact. BMC is doing the best job with integration acquisitions because it generally just buys what it wants. EMC is doing the best job with large-scale partnerships and federating divisions into companies. Lenovo has gained an expertise in buying broken divisions from others (mostly from IBM) and fixing them, showcasing how these divisions could have been fixed.

One firm could have all of these processes in their tool kit and I’m kind of surprised that I can’t point to any one firm that does all of this well. If I ever get around to writing a book on CEO skills, this will likely be one of the chapters. In any case, this is something to noodle on over the weekend.

Rob Enderle is President and Principal Analyst of the Enderle Group, a forward-looking emerging technology advisory firm.  With over 30 years’ experience in emerging technologies, he has provided regional and global companies with guidance in how to better target customer needs; create new business opportunities; anticipate technology changes; select vendors and products; and present their products in the best possible light. Rob covers the technology industry broadly. Before founding the Enderle Group, Rob was the Senior Research Fellow for Forrester Research and the Giga Information Group, and held senior positions at IBM and ROLM. Follow Rob on Twitter @enderle, on Facebook and on Google+



Add Comment      Leave a comment on this blog post
Jan 29, 2015 2:25 PM Phil Phil  says:
There are multiple problems with asset purchases though which makes them impractical for a lot of integration acquisitions - the most common is probably the non-transferability of customer contracts. If the target company isn't acquired, the purchasing company usually has to get all the existing customers of the acquired products to agree new purchasing agreements. This dramatically increases the chance of competitors picking up those customers in the change over. For target companies with small/no customers but good technology the asset purchase can work well - but it's not good for every case. Reply
Jan 31, 2015 7:29 AM PegeF PegeF  says:
What happens to CDB and its stockholders in this process? Reply

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