EMC: Before Acquiring, Check the Wiring

Consider a few names: Documentum, RSA Security, Tablus, VMware, Berkeley Data Systems (parent of Mozy). That’s a very abbreviated version of what’s getting to be a long and pretty illustrious list of acquisitions made by EMC (NYSE:EMC) in recent years. And just in the last few weeks, the Hopkinton, MA, firm announced a couple more moves—picking up Australia-based Infra for an undisclosed amount and making a bid for California disk drive and storage company Iomega. (That bid was initially rejected but got a warmer reception earlier this week when the offer was sweetened to some $205.5 million.)

I’ve long been intrigued by the process leading to these acquisitions, which by almost any measure have been spectacularly successful in rounding out EMC’s product offerings and speeding its evolution from a so-called “storage giant” to a broad-based information infrastructure and content management firm. And it turns out the company has an interesting approach to evaluating its takeover candidates—adopted about three years ago but not written about before, according to a spokesperson—that it believes gives it a real edge in the takeover game. The approach involves a special technical team that takes a deeper look at target companies than EMC says is typically the case in the M&A game, by evaluating how their products are architected and the potential that offers for cross-platform development across EMC’s product lines and business divisions.

I was all ears late last year when EMC’s chief technology officer, Jeff Nick, first told me about the Corporate Technology Review Board, as the advisory team is known, and its role in working with the company’s M&A group to take the acquisitions process to this deeper level. Recently, Nick and the company agreed to share more details about the group—along with an example of how it came into play with the recent Tablus acquisition. (EMC isn’t talking about other takeovers such as Berkeley Data Systems or its Iomega bid, but it isn’t hard to apply the Tablus example to other scenarios.)

Here’s how Nick frames the issue, not just for EMC but for any company that buys another firm: Even when an acquisition lines up well with the acquiring company’s strategy and beautifully fills gaps in its product lines, serious issues can still arise to spoil the purchase, or at least limit its effectiveness. That, he says, is because every company has its own technological “DNA,” which might be very different from the makeup of the acquiring firm’s technologies. If M&A strategists only look at whether a target firm fills gaps in their portfolio and fail to consider carefully such issues as how the technologies were built and whether they’re compatible with the architecture of the acquiring firm’s existing technologies and products, the result can be what Nick calls “a serious impedance mismatch” that can spell big trouble when it comes to assimilating the firm into its new parent’s operations. “Integration cost is a huge cost. I’ve seen this in my past life,” says Nick, who spent 24 years at IBM before joining EMC in August 2004.

In EMC’s case, says Nick, “We’ve always done very smart acquisitions and very strategic ones.” The acquisitions process has been driven by top leadership, including the CEO and the heads of the various business units, who have excelled at identifying new opportunities based on their deep understanding of business models, the markets EMC serves, and the gaps in technology and markets that the company needs to fill. “The thing that was not as well-defined before,” … Next Page »

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4 responses to “EMC: Before Acquiring, Check the Wiring”

  1. Sadly, tech firms are not known for thorough financial and operational due diligence.

    EMC’s CSD and CTRB might be novel within the technology industry but none of this is news to competent private investment firms such as Cerberus, TPG, or GS Partners.

    I should add that the success of a technology review depends upon the competence of the review board. I do not doubt the competence of EMC’s CTRB, but I have been both witness to [and a victim of] the incompetence of other such groups in the tech industry.

  2. Looking to make sure that technology fits is crucial to any acquisition strategy but should be the post acquisition integration strategy.

    Not only does accounting need to be aligned but so do engineering and sales teams. Unfortunately too often this is seen as needed but not strategic, so the acquisitions are slowly integrated, over years, with for example two product groups building similar products.

    This becomes especially critical you’re your acquiring companies at the pace EMC is going.

  3. Marko,

    The same can be said about engineering and sales alignment with regard to existing products and internal projects. Sales and engineering should be considered upstream alongside the tech review.

    But you should not wait until post acqusition to begin thinking about the technology fit. That’s a recipe for disaster.

  4. What would you say about EMC’c acquisition of Business Edge? See http://bit.ly/bD8G7e

    Did it win EMC anything at all?