BMC: Intelligent Mergers and Acquisitions

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I've been spending a lot of time thinking about where the Oracle/Sun merger went wrong and why most mergers of this type fail. It was timely, then, that I was briefed on BMC's acquisition of the NEON Enterprise Software IMS products and customers. This appeared to be a vastly better and safer path from an employee, investor and, particularly, a customer perspective than a full acquisition. For NEON, it may allow it to better survive.


Let me explain.

Company Acquisition

Most acquisitions are company acquisitions because they tend to be easier for the board of the selling company and thus are easier to negotiate. But they have a number of difficulties, particularly when done by large companies. Oracle/Sun demonstrated most of them. There was a long path to regulatory approval, which ultimately was held up by parts of Sun that Oracle didn't even really want and has mostly shut down. The employees who leave as a result of the acquisition do so because they are frustrated or because they can't be adequately protected during the merger approval process. Finally, and this was highlighted in both the Compaq acquisitions of DEC and the HP acquisition of Compaq, there are often a substantial number of problems in the acquired company, which aren't identified until late in the process, and eventually doom the acquisition to fail to meet the often-inflated expectations on all sides.

In short, the result is that the acquiring firm doesn't receive many of the critical assets that it thought it purchased and does get a large number of unplanned problems. On top of this, it now has to go through a corrective process to not only recover the company acquired, but to integrate a very different ecosystem and product set into its own. No wonder most fail and no wonder Sun has been such a problem for Oracle.

BMC: Parts Acquisition

What BMC has done with NEON is far more unusual but, in the end, far better for everyone but the board of the seller who has to stay engaged. By buying just the IMS products and customers. BMC gets a more defined result. The company can immediately move to hire the critical people it wants out of NEON and it doesn't need to deal with the employees it doesn't want. I don't want to play down this one aspect because in a number of geographies, and particularly in Europe, getting rid of employees is a very difficult and expensive process, so to avoid hiring those employees in the first place is a much more cost-effective path and the selling company is generally in a better position to eliminate them. This is actually better for the employees, as normally they can go months or years not knowing whether the firm wants them or not (I've been there), effectively putting their careers on hold and surrounding their lives with uncertainty that can lead to a number of health, substance abuse and family problems.

The acquiring firm can move immediately to integrate the products and doesn't need to first figure out how to rationalize and align organizations of people into their command-and-control structure. It is simply bringing teams into existing working groups and, while this does require some organizational retraining, it is still far less resource-intensive than the typical turf fights that occur when you slam two or more fully fleshed-out operating organizations together. For those of you who have been through this, you know what I'm talking about as managers from the different companies try to protect their own jobs and responsibilities rather than focus on the tasks ahead.


BMC won't have this problem because regulatory approval is vastly quicker since the focus is on the products acquired and not on the entire scope of the acquired company. This alone would have cut months off the approval process for Oracle/Sun.

Finally, customers are given a sense of the outcome early and not scared half to death by competitors for an extended period of time. For instance, during the Oracle/Sun merger, IBM aggressively created fear, uncertainty and doubt with the outcome (given what happened between HP and Oracle, IBM may have understated this problem interestingly enough) and Oracle was unable to respond effectively. With BMC/NEON, BMC is able to assure customers immediately and I understand that most customers are actually happier with BMC owning these products than they were with NEON because BMC is the larger and more trusted vendor. This is particularly critical in mainframe class space where BMC normally operates. In the end, this preservation of trust is likely the greatest benefit to this approach.

The one downside is the NEON board, which can't step away from the responsibilities of running NEON, but, in this case, is left with a more simple product set and the funds needed to build out a company that is better focused, or, if they so choose, to keep operating until they find other buyers or to shut down the company. The board is better informed to make these choices than BMC would have been and the outcome for its remaining customers, employees and even investors is, as a result, arguably better. It is more difficult for them, but then a buyer's primary goal should never be to make the seller's life easier.

Wrapping Up: Parts Are Better

At the core of these acquisitions by BMC is building out its family of cost optimization offerings for its core customer set. By buying just the parts of NEON that it wanted rather than the entire company, it is not only getting a better defined solution, it is also virtually ensuring the result will be successful rather than going down a path that most often results in failure. The only downside is more work for NEON's board, but even there the result should be a better economic outcome for the NEON stakeholders, including the NEON employees.


The takeaway from this is that unless you really want the entire company, which is what Dell normally buys and then leaves intact, a better path for an integration goal is to simply buy the parts that are wanted and leave the rest of the company in the hands of people who have a better knowledge of those parts and a deeper desire to assure the beneficial outcome to the related investors, customers and employees.