Making Software M&A Work
After more than twenty successful acquisitions, the EMC Software chief shares his formula for M&A success.
By Dave DeWalt, EMC Software Group
Jun. 05, 2006
Analysts say upwards of 9 out of 10 acquisitions fail. I won't disagree. The dynamics involved in merging two separate organizations and coming out on the other end a sum greater than the two parts is no easy task.
In my 20 years in technology, my company has been acquired three times and I've acquired more than 40 companies. I've seen how to do it right - and how to do it wrong.
Most recently, EMC acquired my company, Documentum in 2003. I have to admit the integration of the two companies seemed daunting: We built software, EMC primarily built hardware. We were small, EMC was large. We were West Coast, they were East Coast.
Any one of these challenges could have doomed the merger. Yet Documentum is now a thriving part of EMC Software - a roll-up of more than 20 successful acquisitions over the past three years.
Making successful technology acquisitions is not a matter of luck. EMC's success comes from a focused methodology that starts with identifying the right target companies and doesn't end until years after the merger is completed. Here's a snapshot of EMC's approach which many are viewing as the benchmark for successful technology acquisitions.
Acquire Proactively
M&A has become an integral part of our success at EMC. We spend more than a billion dollars annually to build technology well, but our aggressive acquisition strategy has proven to be the key to moving into new markets and augmenting our product portfolio.
The decision to acquire a particular company begins with the business unit. The business leaders develop a product forecast which lays out the future of the product group and provides a roadmap for how to get there. This forecast determines what capabilities need to be built, partnered for or acquired. The objective may be to win a market, capture customers, or move into an area adjacent to current markets.
Very rarely is a company purchased because it approaches EMC with a compelling offer. The decision to buy comes from a proactive, strategic analysis by the business unit.
Identify Core vs. Context
Once the need for a product or service offering is identified, a critical decision needs to be made: is the offering core to the success of the business or is it context? If the answer is core, it is better to build it internally or to acquire a company with the offering. If it is context, it is easier to partner for it.
At EMC, we are constantly making decisions about core and context, building and buying. Our business is information infrastructure and information lifecycle management. Offerings not directly related to these initiatives end up on the cutting room floor.
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In my 20 years in technology, my company has been acquired three times and I've acquired more than 40 companies. I've seen how to do it right - and how to do it wrong.
Most recently, EMC acquired my company, Documentum in 2003. I have to admit the integration of the two companies seemed daunting: We built software, EMC primarily built hardware. We were small, EMC was large. We were West Coast, they were East Coast.
Any one of these challenges could have doomed the merger. Yet Documentum is now a thriving part of EMC Software - a roll-up of more than 20 successful acquisitions over the past three years.
Making successful technology acquisitions is not a matter of luck. EMC's success comes from a focused methodology that starts with identifying the right target companies and doesn't end until years after the merger is completed. Here's a snapshot of EMC's approach which many are viewing as the benchmark for successful technology acquisitions.
Acquire Proactively
M&A has become an integral part of our success at EMC. We spend more than a billion dollars annually to build technology well, but our aggressive acquisition strategy has proven to be the key to moving into new markets and augmenting our product portfolio.
The decision to acquire a particular company begins with the business unit. The business leaders develop a product forecast which lays out the future of the product group and provides a roadmap for how to get there. This forecast determines what capabilities need to be built, partnered for or acquired. The objective may be to win a market, capture customers, or move into an area adjacent to current markets.
Very rarely is a company purchased because it approaches EMC with a compelling offer. The decision to buy comes from a proactive, strategic analysis by the business unit.
Identify Core vs. Context
Once the need for a product or service offering is identified, a critical decision needs to be made: is the offering core to the success of the business or is it context? If the answer is core, it is better to build it internally or to acquire a company with the offering. If it is context, it is easier to partner for it.
At EMC, we are constantly making decisions about core and context, building and buying. Our business is information infrastructure and information lifecycle management. Offerings not directly related to these initiatives end up on the cutting room floor.
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