In the US, tech mergers and acquisitions remain the most active M&A sector in terms of both value and volume; in the first half of this year, $415.4 billion changed hands in almost 1,300 overall deals, according to White & Case’s M&A Explorer. Perhaps your company’s technology acquisition is not quite at the financial level… Read more »
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Dell has announced Francisco Partners and Elliott Management have agreed to purchase its software business unit as the company moves towards deadline day for the EMC merger, reports Telecoms.com.
The deal, initially reported by Reuters, will include the Quest Software and SonicWALL assets reportedly for just over $2 billion. Both assets were acquired by Dell in recent years, for a combined total of $3.6 billion, and while this could be seen as a big loss for the company, details of what the transaction will include and what will remain in the Dell business have not been confirmed.
The acquisition represents two growing trends within the industry. Firstly, venture capitalists have been making some notable moves in recent weeks, possibly indicating confidence in backing cloud companies have returned. Vista Equity Partners bought Marketo for $1.8 billion last month, then this followed up with a deal for Ping Identity for $600 million. Thoma Bravo also bought Qlik for $3 billion and Providence Strategic Growth invested $130 million in Logic Monitor recently.
Secondly, Dell is starting to peel back layers of their business. For the most part, this shouldn’t be seen as a particular surprise; an acquisition the size of the one Dell is currently going through requires funding, and there is also likely to be a certain level of crossover between the two business units. Characterising sale of Quest Software and SonicWALL, as well as Dell Services in March, as panic sales could be tempting, though it could also be seen as logical.
Dell’s buy-out of EMC was initially announced in October last year for $67 billion, billed as one of the largest acquisitions in the history of the technology industry. At EMC World this year, the team took the chance to launch the new brand, Dell Technologies, but also outline the integration strategy of the two tech giants. Dell’s Chief Integration Officer Rory Read and EMC’s COO of the Global Enterprise Services business unit Howard Elias highlighted while a reduction in headcount and sales would be limited, it would not be entirely unavoidable; two companies as large as Dell and EMC are naturally going to have crossover.
The sales to Francisco Partners and Elliott Management could be seen as a means to raise capital for the acquisition, this is hardly surprising as it was highly unlikely $67 billion was going to be found down the back of the sofa. The team have not commented on the specifics of the agreement to date, however one thing it does highlight is sales are a necessity to funding one of the largest deals in the history of the technology industry.
Microsoft has made a play to enter the social market after announcing it has entered into a definitive agreement to acquire LinkedIn for $26.2 billion.
The announcement will create one of the largest cloud acquisitions this year, with LinkedIn shares jumping 47% following the news. During the same period Microsoft shares dropped 3%, possibly indicating some scepticism in the market.
“This deal brings together the world’s leading professional cloud with the world’s leading professional network,” said Satya Nadella, CEO of Microsoft in a note to employees. “I have been learning about LinkedIn for some time while also reflecting on how networks can truly differentiate cloud services.”
Microsoft does already play a role within the social media market, but more from the perspective of providing tools for online advertisers and media agencies. Although the LinkedIn purchase is almost 50% above market value, it could be seen as a much safer play than attempting to crack the social market organically. Google and Apple have seemingly learnt this lesson the harder way, launching Google+ and iTunes Ping respectively, neither of which seemed to have gathered much momentum.
Advertising revenues may be attractive to executives at Microsoft, the move could fall into the wider strategy of being the all-encompassing enterprise IT vendor. Research from JPMorgan highlighted Microsoft is valued as the most important vendor in the IT space due to the broad range of offerings. While others specialize in individual areas, Microsoft has created its position as the ‘one-stop-shop’ enterprise IT vendor. The acquisition of the ‘enterprise social media network’ could fill a whole in the portfolio, building on the theme of collaboration.
“We are in pursuit of a common mission centred on empowering people and organizations,” said Nadella in a note to employees. “Along with the new growth in our Office 365 commercial and Dynamics businesses this deal is key to our bold ambition to reinvent productivity and business processes.
“Think about it: How people find jobs, build skills, sell, market and get work done and ultimately find success requires a connected professional world. It requires a vibrant network that brings together a professional’s information in LinkedIn’s public network with the information in Office 365 and Dynamics. This combination will make it possible for new experiences such as a LinkedIn newsfeed that serves up articles based on the project you are working on and Office suggesting an expert to connect with via LinkedIn to help with a task you’re trying to complete.”
While the two companies could be seen as complimentary, it would appear a combination of the two would create a total addressable market (TAM) of $315 billion. According to a joint slide-deck shared by the team, LinkedIn has a TAM of $115 billion where as Microsoft can account for $200 billion. The team believe by joining forces and further diversifying the offering, this number can be further increased through differentiated experiences.
LinkedIn is billed as the largest professional social network globally, and has been growing steadily to 433 million members in recent years. The team have introduced a number of new features in recent months which it credits for increased engagement levels as well as membership numbers. Over the last 12 months the team at LinkedIn launched a new version of its mobile app, acquired online learning platform Lynda.com and launched a Recruiter product for its enterprise customers.
The number of social media users worldwide is estimated at 2.22 billion, with Facebook controlling the largest share at 1.59 billion. Judging the market value of social on the whole gives widely varied results, though Facebook did announce revenues for Q1 of $5.4 billion, a 52% year-on-year growth. The company now claims to have 3 million active advertisers on Facebook and over 200,000 on Instagram.
While the news will dominate technology headlines, there will still be some questions surrounding the integration of LinkedIn into the wider Microsoft portfolio. Office was a prominent character in Nadella’s email to employees, though whether this means LinkedIn will be incorporated into Office proposition has not been stated. For some, the role of social in the workplace is still unclear.
Following the completion of the deal which is expected by the close of the year, Jeff Weiner will remain LinkedIn CEO, reporting into Nadella.
HPE CEO Meg Whitman
CSC has announced it will be merging with the enterprise services segment of HPE, as the latter reported its fourth consecutive quarter of year-over-year revenue growth.
Revenues for 2016 Q2 were reported at $12.7 billion, up more than 1%, as the team attributed the success to its servers, storage, networking and converged infrastructure business units. The enterprise services unit also saw a healthy performance, and will now be spun out and merged with CSC to create a $26 billion organization.
“The transaction is currently targeted to be completed by March 31, 2017,” said HPE CEO Meg Whitman on the company’s earnings call. “For the combined CSC and Enterprise Services, this will create a new company that will be a pure-play global IT services leader. For customers, this means global access to world class offerings in cloud, mobility, application development and modernization, business process services, IT services, big data and analytics, and securities.”
The move comes six months after CSC underwent a similar split to HP and HPE. CSC serves commercial and government clients globally, whereas CSRA targets public sector clients in the United States. Following the completion of the transaction next year, CSC’s current president and CEO Mike Lawrie will continue to head up the new company, though the new brand has not been released as of yet. Both companies have seemingly benefited from their respective splits in recent months, demonstrating healthy growth since the two separations.
Since the CSC separation, the company has been aggressively reinforcing its position in the market with various acquisitions and joint ventures. Created CeleritiFinTech, a joint venture with HCL, to strengthen its position in the banking sector, acquired UXC to increase its footprint in the Australia-New Zealand region and bought Xchanging to bolster its insurance solutions.
“Our proposed merger with HPE Enterprise Services is a logical next step in CSC’s transformation,” Lawrie said. “As a more powerful and versatile global technology services business, the new company will be well positioned to innovate, compete and serve clients in a rapidly changing marketplace. We are excited by the great potential this merger brings to our people, clients, partners and investors, and by the opportunity to strengthen our relationship and collaboration with HPE.”
In terms of HPE moving forward, Whitman highlighted next generation software defined infrastructure is a priority for the business, focused on servers, storage, networking, converged infrastructure, hyper-converged, and Helion. The company has stated it will remain open to future acquisitions, though it would appear there aren’t any major targets in the pipeline as Whitman seemed ‘standoffish’ during the earnings call.
Sebastian Krause, General Manager for IBM Cloud Europe
For senior CIOs, knowing how to respond to an M&A and divesture situation is key, as mergers, acquisitions and divestitures are a critical component of business strategy.
Projections for European M&A transactions show total deal values are set to rise from US$621 billion in 2014 to US$936 billion by 2017. M&A activity is likely to be bolstered by continued positive monetary policy, with additional cross-border M&A activity likely to take place as a result of a strong US dollar, primarily in Spain, Germany, and Italy.
Increasingly, businesses are using M&A to grow their organisation, achieve economies of scale, expand product portfolios, globalise and diversify.
In the intense negotiations around this business change, IT operations are likely to face dramatic reorganisation as various stakeholders analyse existing systems and look at the potential for efficiencies.
This is about survival and the IT division is likely to be under intense scrutiny during this period, under pressure to perform critical functions such as the integration or separation of critical systems and data, the provision of an uninterrupted service during the transition period, and the prompt delivery of synergy targets. IT strategy is therefore core to any successful M&A or divestiture plan and a critical contributor to its success or failure.
Increasingly, CIOs are under pressure to meet these challenges quickly and at lower cost. Their ability to do so can even impact the way analysts assess potential deals. IT dependent synergies have been found to be responsible for a large proportion (30 to 60%) of M&A benefits, but 70% of M&As fail to meet their synergy targets in the planned timeframe.
Realising these M&A and divestiture targets for enterprise IT environments is complex and requires a holistic approach that considers public, private, IaaS, PaaS, and SaaS as well as non-cloud delivery models.
Some CIOs may approach the situation by simply making adjustments to the existing IT landscape – from CRM, ERP through to office.
This can involve singling out certain components of an established Enterprise Resource Planning (ERP) system, cloning the existing ERP environment, deploying existing systems into the acquired business asset or transferring data between differing systems with the expectation that no issues with integration will arise. These approaches have certainly worked in the past, but can be costly, challenging to implement and disruptive.
This is why many CIOs are looking at a move towards cloud-based applications and infrastructure, which can take the pain out of the M&A process. Broadly, the drivers for moving to cloud services are increased agility, speed, innovation and lowering costs.
They can help organisations going through mergers and acquisitions to realise synergy benefits more quickly, simplify integration and accelerate the change programme, reduce costs through efficiencies, mitigate costly migration investments and encourage financial flexibility.
Top cloud benefits for M&A:
Developing a repeatable platform that delivers these benefits and simplifies M&A activities will greatly improve an organisation’s ability to grow and be successful. It may even open up new opportunities that might not have been possible without the cost, flexibility, and scalability benefits that cloud solutions can deliver.
With businesses already realising real benefits, the cloud’s role in M&A is only set to grow. By building a cloud model that works, organisations can avoid reorganising IT operations for each merger or acquisition and ensure a much more seamless transition.
Through implementing an approach that can speed the execution and success of these deals, CIOs can look to deliver value from the IT department that goes far beyond just support, to true business leadership.
Written by Sebastian Krause, General Manager for IBM Cloud Europe
Dell’s Chief Integration Officer Rory Read (Right) and EMC’s COO of the Global Enterprise Services business unit Howard Elias (Left)
Speaking at EMC World in Las Vegas, Dell’s Chief Integration Officer Rory Read and EMC’s COO of the Global Enterprise Services business unit Howard Elias offered some insight into the workings of the Value Creation and Integration Office, the team built to manage the integration of EMC and Dell during the course of the merger.
The Value Creation and Integration Office was created following the announcement of the merger last year with the intention of managing the transition of taking two tech giants and moulding them into one efficient organization. Both Read and Elias have experience of overseeing such activities, Read was for example the President of Lenovo during the Intel acquisition, though there are few similarities between the pair’s previous experience and one of the largest mergers in business history.
“Both companies have some extensive experience of acquisitions and incorporating other businesses, but we couldn’t use any of the playbooks for this one,” said Elias of the current merger. But while there are few examples to draw upon to build a blueprint that is not to say it is a more complicated task. In fact, the pair argued the integration of the two organizations has been a relatively smooth journey thus far, with few major roadblocks envisioned moving towards Day 1, the team’s nickname for the deadline when Dell and EMC will cease to exist as two separate organizations.
Dell’s Chief Integration Officer Rory Read
“The collisions or overlaps are very minor, this is why the integration has been very smooth so far,” said Read, with regard to the overlap in business operations between Dell and EMC. The pair drew attention to the current focus areas of both businesses to explain the smooth integration thus far. While Dell and EMC play in the same arena, to date there has been very little direct competition between the two businesses. Read claims this lack of overlap makes their job easier, but ultimately creates a host more opportunities for the new company, Dell Technologies, in the future.
While combining the revenues of the two businesses would certainly make a significant figure, the team believe the cross-selling and up-selling opportunities created by having a single business offering both the portfolios would create more prospects. “Our customer overlap isn’t large and opens up a lot of new opportunities,” said Read
In theory, by cross-selling Dell and EMC’s portfolio’s in one product offering the team believe there is an opportunity to steal market share from Dell/EMC competitors, dependent on which one is the incumbent supplier. This cross/up-selling opportunity will enable the team to exceed the combined revenues of Dell and EMC, the team claims.
The integration will not stop with EMC and Dell as the company plans to merge the channel partners as well. Details of this aspect of the integration have not been released as of yet, however Read and Elias highlighted the channel partner programmes for both organizations would be phased in. Some announcements will be made on Day 1, though the majority will take place at the end of the year, as this is a natural time for the channel partners to expect a change in operating practise.
EMC’s COO of the Global Enterprise Services business unit Howard Elias
The final hurdles the team face are the Chinese regulators, the one remaining body to have not signed off on the merger to date. While Chinese regulators have proven to be a difficulty for other organizations in the past, Read and Elias claim it should be a relatively simple process for the team. Read highlighted the fact that all other regulatory bodies had signed off on the deal 100% with no condition attached, it was a good sign when considering the Chinese regulatory process.
In terms of headcount, although there were no official figures given, Read and Elias did indicate there will be job losses as a result of the merger. Due to there being few areas where the two businesses overlap, the reduction in headcount will be low, according to Read, but as with any other merger it is unavoidable. The team will not be releasing any comments or numbers relating to job losses until Day 1.
There have been difficulties in bringing two vast organizations together according to the team, though this is unavoidable in such a task. The $67 billion deal is one of the largest in business history, and it shouldn’t surprise many that the task of integration is a vast one also, though the team are confident the methodology which is in place to create one organization, will be successful.
“This deal is on time, on plan and on budget, from the schedule we set out in October,” said Howard. “The integration and merger is running smoothly and we’ll be ready to go. Day 1 is not the end of anything, it’s the beginning of our new company.”
Microsoft has acquired IoT platform provider Solair in a bid to bolster its Internet of Things division, writes Telecoms.com.
The acquisition will see Solair integrate with the Azure IoT business within Microsoft, a move which Microsoft says will continue to enhance its IoT offering for enterprise consumers. While it wasn’t forthcoming with in-depth details, suggesting that more specifics are in the offing, Microsoft did highlight some of the areas in which Solair already has its solutions in live deployment.
Solair is already integrated into the Azure cloud, and provides IoT gateways and platforms to both connect and monitor IoTdevices and processes, coupled with customisable management software. According to Sam George, Partner Director for Microsoft’s Azure IoT division, Solair has proven success in developing and deploying industrial IoT services, about which there exists quite a lot of excitement at Microsoft.
“Solair’s IoT customization and deployment solutions, built on Microsoft’s Azure cloud platform, are engineered to help businesses in any industry utilize IoT to run more efficiently and profitably,” he said. “For example, Solair has brought the power of IoT to the Rancilio Group’s full line of espresso machines, allowing the Italian manufacturer to remotely monitor machines resulting in greater efficiency across the supply chain. Using the power of cloud-based data and analytics, Solair has helped the Rancilio Group reduce costs and increase revenue.
The cost of the acquisition to Microsoft is yet to be disclosed, although George did suggest further information and details of the deal are to be release in the not-too-distant future.
Systems integrator Maintel announced it has entered into a conditional agreement to acquire Azzurri Communications.
The acquisition of Azzurri Communications, which offers communication services including telephony, mobile services, document management, is part of a larger push for Maintel market position. The company highlighted that the deal is a strong component in its strategy to grow and diversify its revenue base.
“Azzurri Communications is a highly respected business with a complementary product offering and target market, which will provide enhanced scale and visibility for the combined group,” said Eddie Buxton, CEO at Maintel. “This acquisition will accelerate Maintel’s shift into hosted cloud and data, ensuring we are well positioned to take advantage of these high growth areas of the unified communications market. It will also build scale in managed services, continuing the shift in our business mix, which we have been driving following previous acquisitions.”
The acquisition will broaden Maintel’s offering to include a network services division, a mobile division, managed services, and technology and professional services. “With the acquisition of Azzurri, Maintel will also gain a new set of highly skilled and professional team members. We are looking forward to welcoming Azzurri employees to the group,” said Buxton.
Alongside the announcement, Maintel’s also reported a 21% increase in revenues for 2015, up to £50.6m. As part of the company’s growth strategy, it also acquired Datapoint and Proximity Communications in recent months.
“We are really pleased at the prospect of joining Maintel because this enables the combined business to offer its customers a broader range of services,” Chris Jagusz, CEO of Azzurri Communications. “Our employees will benefit too by being part of one of the most significant players in our market.”
HPE has announced its intention to sell its majority stake in Mphasis in a deal with Blackstone, believed to work in the region of $825 million.
The company said that Blackstone has agreed to purchase at least 84% of its stake in Mphasis for INR 430 per share. Blackstone will purchase the maximum amount of the remaining 16% stake that is permitted by Indian securities laws and subject to the outcome of a mandatory tender offer between signing and closing. Assuming the values are correct, HPE’s in the Indian business would be values in the region of $825 million.
Indian IT Services company Mphasis has been part of the HPE group since 2008, after its parent company EDS was wholly acquired by HPE. The company had 23,000 staff at the end of the quarter, delivering both business process outsourcing and IT services.
“While our financial relationship is changing, the business and commercial relationship with Mphasis remains an important part of our service delivery strategy,” said Mike Nefkens, GM of HPE Enterprise Services. “We remain committed to our strategic partnership with Mphasis and to providing our customers with the high level of service and support they expect from HPE.”
It is believed that the deal represents a move from HPE to remove business components which do not line with future business objectives. In recent weeks, the company has made moves to improve its position in a number of markets including cloud infrastructure equipment market and machines learning. While the deal may represent HPE moving away from the Indian IT services market, it will not affect the commercial relationship between the two companies.
HPE plans to renew the current master services agreement with Mphasis for another five years in connection with this transaction. It is estimated that HPE business accounted for 24 percent of the Indian company’s total revenue of rupees 15 billion in the fourth quarter of 2015.
Japan’s NTT Data is to acquire Dell’s IT Services business for $3.06 billion, in an effort to bolster its footprint in the North American region.
The announcement confirms speculation over recent months as to the future of the IT Services division, as Dell has been rumoured to be searching for a buyer for the business unit to aid financing of the EMC deal. Dell Services was initially formed through the acquisition of Perot Systems in 2009 for $3.9 billion. The new agreement with NTT Data will see Dell absorb an $800 million loss on the division and could indicate that financing the EMC acquisition is more difficult than initially expected.
In December, BCN reported Dell had been facing challenges in financing one of the biggest financial deals in history. For the $63 billion EMC acquisition to proceed, Dell has had to reduce its levels of debt with the Perot Systems business unit rumoured to be a favourite for sale.
The company will initially remain under the leadership of Suresh Vaswani, current President of Dell Services, who will continue to report to Dell CEO Michael Dell until the completion of the deal. It is believed that as part of the acquisition NTT Data will take on 28,000 Dell employees, though future leadership of the business has not been confirmed.
“NTT Data is pleased with the unique opportunity to acquire such high-calibre talent, and a corporate culture that shares common values with NTT Data, with emphasis on client first, foresight, teamwork and a commitment to innovation,” said Toshio Iwamoto, President and CEO of NTT Data Corporation. “Welcoming Dell Services to NTT DATA is expected to strengthen our leadership position in the IT Services market and initiates an important business relationship with Dell.”
NTT Data’s acquisition of the IT services division is the largest by the company to date and continues to bolster its North American footprint. Revenues for NTT Data in overseas markets has more than doubled since 2011 and in the same period the company has spent more than $600 million on acquisitions. The company has prioritized growth in the North America region, primarily targeting lucrative contracts in the healthcare, banking, financial services and insurance.
Since 2011 NTT Data has been proactive in bolstering its overseas business with a number of acquisitions throughout the world. In Europe it acquired companies including Everis and Value Team, in North America Optimal Solutions Integration and Carlisle & Gallagher were added, whereas iPay88 increased the company’s footprint in Malaysia.
“There are few acquisition targets in our market that provide this type of unique opportunity to increase our competitiveness and the depth of our market offerings,” said John McCain, CEO of NTT Data. “Dell Services is a very well-run business and we believe its employee base, long-standing client relationships, and the mix of long term and project-based work will enhance our portfolio.”
The deal could indicate that financing the EMC agreement has proved to be more difficult than initially expected. Dell Services as a business unit was reportedly to be valued in the region of $5 billion, which could highlight Dell’s urgency in completing the sale. If reports are correct, it would appear NTT Data has negotiated a good deal.