This week, Dell and EMC announced they were closing the merger of Dell and EMC on September 7. The last merger of this scale I covered in depth was that of HP and Compaq, and I spent much of the time trying to talk Compaq into running away. The two merger efforts differ like night and day and, to a large extent, the difference points to why most huge mergers fail and why Dell and EMC will be the exception.
Let’s look at these mergers from three levels: cause, planning and execution.
The HP/Compaq merger was designed to take HP from an also-ran to market dominance in one huge step. The goal was simply to grow the company rapidly, which it did. But the focus on size completely missed that both firms were in a lot of trouble. Even worse, Compaq was nearly killed trying to complete the Digital merger and had been blindsided by what a mess Digital was, particularly in Europe. But Carly Fiorina desperately needed some good news because she was clearly out of her depth at HP and her board, who eventually fired her, was losing confidence.
The EMC/Dell merger was conceived to keep “activist investors” from breaking up EMC. Neither firm was being turned around, neither was struggling to complete a large merger, and neither CEO was at risk of being fired. In fact, Joe Tucci, the CEO of EMC, had been unable to retire because EMC’s board hadn’t been able to find a suitable replacement.
So the motivation wasn’t to save the CEO’s job but to find someone else qualified to take it. Michael Dell, a self-made CEO at scale, was thought to be an ideal candidate but there was no way EMC could hire him away from his own company. The merger motives were not at cross purposes to the successful operation of the firms. The firms were in relatively good shape, and neither CEO was doing the deal for personal gain (other than Tucci wanting to retire).
The HP/Compaq merger followed a proxy fight to take over the company and block it by the families of the firm’s founders. Fiorina won the fight but lost her job which, to me, isn’t really a win. I used to follow the warring parties through the financial firms and what amazed me was the distinct lack of merger planning. To win the proxy fight, it was Compaq’s CEO, an ops specialist, who largely put together a viable merger plan.
That was Michael Capellas and he was the only one from either side that the financial firms thought had a clue. They were particularly unimpressed with Fiorina, which seemed surprising at the time because her presentation skills were impressive. Even so, HP and Compaq were slammed together with relatively little planning, which was why the incomplete Digital merger seemed like such a surprise.
The Dell and EMC folks have been working on merger plans and staffing almost since day one. They are entirely ready to hit the ground running. I’ve spent quality time with Rory Reed, who headed the effort from Dell’s side, and I’ve never seen a merger this well planned before. While most merger plans are largely incomplete when the merger finalizes, the Dell/EMC plan was pretty much complete weeks ago, which is why they are able to start joint operations immediately.
This is unprecedented and this speed is seldom seen in even small mergers. I am still in awe, given that I’ve been told over the years that this kind of pre-planning is impossible due to the rules that surround mergers of large public companies. This suggests that the folks who constantly point to these rules as a reason to delay critical planning are largely full of crap.
The execution of the HP/Compaq merger with its various site changes, product line changes, layoffs and staffing changes took painful years, and when Fiorina was fired, HP was still far from one company. The product conflicts alone were massive and painful to watch as they got resolved. In some cases, they weren’t even able to consolidate the lines because to do so would have cost too much market share.
Dell/EMC’s structure has little in the way of overlaps, and both companies have largely left many of their prior acquisitions and units independent. This creates a near ideal merger foundation because the kinds of conflicts HP and Compaq had, as well as the related complexity, largely don’t exist between EMC and Dell. This means that both firms’ operations can largely continue unchanged, at least with regard to the wholly or partially owned firms. Even the corporate lines only overlap in mid-range storage. One area of overlap, services, was eliminated before the merger was completed, making the execution massively simpler and, in theory, far faster than HP and Compaq ever could have executed.
It is really quite amazing.
I think the big problem with large mergers is that most are like what HP and Compaq attempted (and Meg Whitman has largely undone) and have been between too similar companies with way too much product overlap and tactical conflicting goals.
The Dell and EMC merger is distinctly different because the goals largely revolved around addressing non-operational problems. The firms were already in good financial and operational health, the merger was well planned, and execution actually started before the merger was finalized. As a result, rather than looking like two cars crashing in slow motion, the Dell/EMC merger looks like a marriage between peers. Rather than being long on promise and short on execution like HP/Compaq was, it has been short on promise and long on execution, which suggests it will more than meet expectations.
I maintain that it isn’t the size of the merger that creates the problems. It’s the reason for it, how good the planning is, and how well and fast the firms can execute. HP/Compaq showcased the traditional approach that left them wounded, without a viable board, with a deposed CEO, and in a perpetual turnaround. The Dell/EMC merger should result in the largest traditional company in tech. Oh, and likely the largest U.S. private company as well. That too was supposed to be impossible. This just showcases that if you do something for the right reasons, plan early and deeply, and execute to a high standard, the result can exceed expectations.
Given how aggressively some of my peers tried to kill this one, I’m also thinking payback is going to be a bitch.
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+.