Dell/EMC Merger: Why People Don’t Get This Is Different

Rob Enderle
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Mergers generally fail and large mergers generally fail spectacularly, so I get why many of my peers and members of IT management think the Dell/EMC merger will be a train wreck. They also thought Dell couldn’t be taken private because, generally, for a company like Dell, the path would be virtually impossible particularly if you had a corporate raider like Carl Icahn working against you.  

But here’s the thing: I’ve spent a lot of time looking at merger processes. I ran a merger clean-up team when I was at IBM (and I was really busy), and I’ve looked at Dell’s process in depth, one that was initially developed at IBM but refined at Dell. I learned there is nothing like it. Granted, a large merger will stress any process but, given EMC’s structure and Dell’s approach, there should be little customer impact for 12 to 18 months, and much of that initial impact should be positive.

In most every other large merger, there would be a reason to run for the hills, largely because most large companies don’t want to learn from their mistakes and would rather focus on shooting the people that made them. But Dell is very different. It actually has an incredibly successful merger process that, for some screwy reason, no one else seems to want to emulate.

I’ll compare the HP/Compaq merger that I thought was idiotic to the Dell/EMC merger, so you get a sense of what makes this different.

HP/Compaq

This HP/Compaq merger really set the tone for large mergers in its class, and not in a good way. Both HP and Compaq were in trouble and Carly Fiorina needed something big to take folks’ minds off the fact that she sucked at setting financial expectations. She’d come out of marketing and just didn’t seem to get that she could be as positive as she wanted about product but she needed to sandbag and not over-hype financial performance, particularly at the front end of a turnaround.

No one seemed to have the slightest idea of how to do this until the founders’ families on the board rejected the deal and a proxy fight resulted in the creation of a plan. It turned out to be a pretty good one, but had that proxy fight not occurred, at the close of the merger, there would have been no detailed plan on how to bring the two companies together.


Even with the plan, one thing that was overlooked was that Compaq had bought Digital Equipment Company some time back and had not been able to get rid of much of the related cost, even though much of the revenue had evaporated. Once the merger was done, because the resulting entity was profitable, they weren’t able to cut jobs in Europe, which was heavily overstaffed and arguably overpaid.

Finally, the proxy fight butchered the board, eventually contributed to the termination of Fiorina, and set the stage for what has been a revolving door of CEOs and top executives, eventually leading to a catastrophic split in the firm.

Dell/EMC

Neither Dell nor EMC are in financial distress. EMC was under pressure to break up by “activist investors” so that valuations could increase and a qualified successor for Joe Tucci could be found. But it isn't in trouble and Dell’s going private has resulted in massive financial success for that company. So the goal isn’t to magically find benefit in smashing two sick companies together; it’s more to keep EMC from being broken up once Tucci retires. It’s mostly a creative way to take EMC private.

Dell and EMC are already circulating a two-year plan for the merger. While I can’t talk about it in detail, it starts with executive alignment at the top and it is consistent with Dell’s process which, unlike HP’s, focuses on identifying and protecting assets, not forcing the culture and structure of the purchasing company on the purchased firm. And rather than struggling to create a plan to convince large investors to side with the CEO in a panic, at this point they are actively presenting the two-year operations plan to operation groups so they can hit the ground running when the deal is done. They’ve already started to announce executive realignments.

As a result, the internal strife that often seems to be heavily evident in mergers like this is virtually impossible to find here. And while the regulatory and financing processes still take time, the approach still appears measured rather than panicked. There is, as yet, no reason to assume this merger won’t be as successful as all of the other mergers Dell has done over the last decade, particularly since the incredibly successful Dell merger process has been in place.

As far as visible status, regulatory approval in Europe and the U.S. is done, staffing has been announced, and the EMC stockholder’s vote is coming with little reported opposition. Dell has even started aligning partners, something that typically happens toward the end of the process. So, by all objective measures, the merger is nearing completion.

Wrapping Up

There’s an old joke about two guys watching a western. One guy leans over and says to the other, “I bet you $5 the cowboy in the movie falls off his horse.” The other guy says, “You’re on.” The cowboy falls off the horse a little while later. The first guy says, “I can’t take your money because I’d already seen the movie and knew this would happen.” The other guy says, “Keep it, I saw the movie as well and didn’t think he’d be stupid enough to do it twice.” Both EMC and Dell are successful, both have decent merger processes, but Dell’s is outstanding and it is the acquiring company. Virtually every merger that Dell has done for a decade has been successful and it also successfully took the company private. So why would anyone assume either company would suddenly screw up now?

Of course I can’t answer why everyone on the planet doesn’t copy Dell’s acquisition process or EMC’s customer care process. Actually I can, because, for most, it is still more important to find someone to blame when things go wrong than to ensure they go right in the first place. That’s not the way EMC, and especially Dell, operate, so getting against them, like the guy that bet that the cowboy wouldn’t fall, is a bad bet. Perhaps Forbes was prophetic, or maybe they just understand how to read an actual trend.

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
Mar 5, 2016 10:22 AM John John  says:
Hi Rob, future will tell but I have to disagree and reckon your are comparing apples and oranges. Most of Dell's acquisitions have been diminutive (Wikipedia: On December 18, 2012, Dell announced it was acquiring Credant Technologies, a provider of storage protection solutions.[114] Credant is the 19th acquisition in four years, as Dell had spent $13 billion on acquisitions since 2008 and $5 billion in the past year alone). That means less than 700M on averager which equals 1% of the 67B. The analogy that come to my mind is that if I can eat one burger I can as well digest 100 burgers. The only larger acquisition (Perot Systems) can not really be called a success. As mentioned before, only future will tell. Cheers John Reply
Mar 5, 2016 2:10 PM cloudnavigator cloudnavigator  says:
Well, the merger process does have to work or everything else will be wasted effort. Yes, Elliott Management was after EMC to increase shareholder value, which is their usual demand once they buy 8 percent of the stock. This is what they did at Novell and more recently at NetApp. So taking EMC private would keep Elliott Management from coming around. The said, Dell has a lot of debt and needs to sell about $10B in assets to do the deal along with getting the banks to find the additional investors to complete the sale. Dell will need to sell some combination of Perot Systems, SonicWALL, Quest, Compellent and/or EqualLogic. The latter two will be less attractive with EMC coming onboard. So why does Dell want to buy EMC? Dell wants to run with the incumbent enterprise IT providers like HPE, IBM and Oracle. They needed a more convincing storage architecture to do it. Will it all work? Time will tell, and EMC is planning to drop 6K employees by June. Reply
Mar 7, 2016 2:18 AM Phil Phil  says:
IMHO, looking at this article: http://www.nytimes.com/2015/10/13/business/dealbook/how-dells-weak-performance-could-affect-its-67-billion-emc-deal.html? Dell is entering EMC partnership from a position of weakness. It’s just that as a private company, Dell is able to mask this. This acquisition may therefore be as much about propping up Dell as it is “saving” EMC. Dell is only required to send financial reports to holders of its debt securities and not the SEC. The Times was able to get Dell’s most recent quarterly report (Q2FY16, which ended 7/31/2015). According to this filing Dell’s situation is poor: Widening Losses – In six months prior, Dell had net loss of $768M, compared with $570M loss for the same period last year. Declining Revenue – For 1HFY16, Dell’s revenue fell to $27.5B from $29.5B in 1HFY15 (a decline of 6.78% y/y). Declining Margins – Gross margin declined to 17.1% in 1HFY16, from 18% in 1HFY15. In its filing, Dell stated that margin shrinkage was “primarily driven by an overall market decline resulting in a decrease in desktop & notebook units sold, in conjunction with challenging pricing dynamics.” Increased Financing – Dell has extended $5.17B in loans, etc. Reply
Mar 7, 2016 5:14 AM Darel Rex Finley Darel Rex Finley  says:
Thought-provoking article. The problem with big, tech mergers in general, as I see it, is that there just wasn't any reason for those two companies to become one. The HP/Compaq merger didn't doom either company, but it didn't help them, either. I would think that buying EMC (for $67B?!) was maybe a good idea if EMC had something special that a PC maker like Dell would benefit to have as a Dell exclusive. But what are the details of that? Couldn't Dell make its own cloud services? Don't other computer makers have their own cloud services? With several-year hindsight, we all know why Apple bought Siri, but we don't have a clue why HP bought Compaq. Several years from now, will we be looking back and saying, wow, it's obvious why Dell bought EMC? Reply
Apr 5, 2016 1:23 PM votzemt votzemt  says: in response to Darel Rex Finley
I think what helps explain the process for Dell is the misconception they are just a PC Maker. Dell has made many strides to push the envelope with their enterprise focus over the past 8 years. Their server line is top notch (pizza box, blades, converged and even hyper-converged) and with the acquisition of KACE, Equallogic, Compellent and Force 10, Dell proved they are player in the enterprise world. Does buying EMC and the heavy price tag make sense to me, not at all. EMC is to laden with spinning rust but Dell will finally be #1 after this. Reply
Sep 8, 2016 8:41 AM Don Don  says:
I feel cheated. I bought EMC products because I wanted firm quality. Dell, bless them for the lower tier they operate at, do not understand quality. Nor do they deliver quality: it's not their market. Wish I could dump all the EMC investments I've made to date now. Reply

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