Mergers: Why EMC Succeeds, Motorola Is Failing and NetApp Will Fail

Rob Enderle

Based on some of my emails this morning there is a lot of speculation right now on who will buy NetApp (this seems to pop up every few years). Coincidentally, last week I was reviewing the Nicira acquisition by EMC subsidiary VMware. Regardless of who buys NetApp, were it sold, the company likely would be destroyed unless the acquiring company used EMC as the gold example of how to do a merger. Given EMC and NetApp are mortal enemies, the thought that EMC practices might save NetApp has the kind of irony I like to think about.

On top of this, the Motorola layoffs (estimated at 4,000) suggest that company is spinning the drain, also showcasing the ongoing problem with acquisitions and those poorly trained to do them. Let’s cover why Nicira, even though it seems to compete with critical VCE partner Cisco, will be a successful acquisition, why Motorola is failing and why a NetApp merger would most certainly fail.

EMC’s Process

What makes EMC acquisitions different, and VMware is itself a successful demonstration of EMC’s process, is that EMC rarely does integration mergers and, when it does, the focus is on preserving the asset and not on making life easy for line management. This is why most mergers, particularly large ones, fail. The acquiring company places things like employee, management and vendor policy consistency in front of protecting the acquired assets and those assets are sacrificed, destroying the value of whatever was acquired. With small acquisitions, this can be concealed, but with large acquisitions, it can not only destroy the acquisition but the related revenue and cost drag can cripple the newly combined entity. 

This was the clear problem with the Digital merger by Compaq and why many of the HP acquisitions (Palm only the latest example) crash and burn with catastrophic results. Yet, you look at Dell, EMC or IBM (recent IBM because IBM had this problem as well in the 1980s and 1990s) and you see a much higher success rate. Part of this is that it is generally easier to do smaller acquisitions, which are the mainstay of most currently happening, but the other part is they keep track of why the acquisitions were made and place protecting the asset(s) as the primary goal. 

This tends to result in more arm’s-length relationships and EMC stands out as having another tool set as well as the “super partnership.”

VCE

VCE is a unique corporate entity that serves as an example of how to get the benefits of a merger without taking the risk of slamming the companies together and putting all at risk. This allows the firms to continue as virtual divisions of a firm led by Michael Capellas, which provides IBM- and HP-like solutions to the very largest companies, but without weakening any of the divisions independently. VCE works partially because of EMC’s laser-like focus on customer and partnership relationship metrics and the fact that every executive is measured by the strength of these relationships. If it prioritizes something else it will have an adverse impact on its compensation and carrier path, so these executives work to assure these relationships, which is atypical of their peers in more traditional firms.

The executives’ incentive programs are designed to correct the more typical behavior that often has executives from competing divisions in a complex company working against the best interests of their peers and the overall corporation. It is a brilliant and very unique design that likely will serve to assure EMC success going forward.  


This is why the Nicira acquisition won’t damage the Cisco relationship. The incentive program inside EMC, and by proxy VMware, assures that if there are any conflicts, the Cisco relationship will prevail and Cisco knows this. This acquisition will be used to further VMware’s own offerings and to enhance VCE’s and any damage to Cisco will be actively avoided. Cisco will likely even have access to portions of this technology that it can use and VMware already has access to Cisco’s portfolio to complete its solution.  

It should be noted that Cisco and VMware have a healthy partnership with NetApp, but this too is managed so it doesn’t excessively threaten VCE. The concept is called coopetition and at EMC it is a high art. 

Wrapping Up: The Reasons Behind Motorola’s Failure and Why NetApp Will Fail

As an acquisition, Motorola is failing because it wasn’t clear what Google wanted to acquire. The patent portfolio Google acquired was inadequate, suggesting it didn’t even properly value the assets and Google clearly doesn’t care about Motorola’s operations.  

NetApp will fail as an acquisition because it is unlikely EMC, Dell or IBM will buy it and no one else in this class has the needed skill set to do an acquisition of NetApp’s scale (Dell just doesn’t do big acquisitions and there is too much overlap with EMC and IBM to make it work).   

There is a right way to do acquisitions and strategic partnerships, and Google is an example of one that hasn't bothered to learn what that right way is even though EMC is hardly making it a secret.  



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