Experiences

Post Merger & Acquisition Integration

One of the biggest misperceptions about post-merger integration is that it can simply be tacked on to existing day-to-day responsibilities.

Mergers and Acquisitions are a fact of business. In 2020 alone, over 30,000 M&As totaling $3.6T (yes trillion!) were closed. Given this volume, it is no wonder we have all seen examples of M&A deals that didn’t work out. AOL –Time Warner, Daimler-Benz – Chrysler, HP-Compaq, Google – Motorola — these are just a few of the big ones. An Ernst and Young analysis of 2,500 such deals shows that more than 60% of M&As destroy shareholder value.

 

There is a clear reason for this.

The typical post-acquisition process is that you often take a group of leaders who have largely never been part of an acquisition before and don’t have critical knowledge of the acquired company or industry. They are put in charge of key elements of the acquired company vital to integration.

 

This is like taking someone that has only been to a doctor, giving them a hatchet, and letting them into an operating room with only a vague idea of what was wrong with the patient.

 

Eventually, the patient starts to die and, in a panic, they start hacking off limbs (doing layoffs), with the best outcome being the patient running, screaming, out of the room because someone forgot to knock them out.

 

Even more amazing is that firms generally buy companies in areas where they want to expand and lack the knowledge and skills. Then they put their admittedly uninformed executives in to run the effort and seem genually surprised when the result is a disaster.

$3.6T of M&A was closed in 2020, totaling 30,000 transactions.
70 to 90% of M&A transactions fail according to a recent Harvard Business Review report
Most common M&A failure comes from poor Go-To-Market integration, failure to develop strategic employee engagement programs, and poor multi-layered communication.

My M&A Experience at Dell

Before Dell’s successful partnership with Silver Lake and EMC acquisition that created Dell Technologies, the legacy Dell Inc. pursued M&A as a means to diversify its portfolio, deliver customer value, and ignite growth. In fact, between 2009 and 2012 alone, Dell completed 17 acquisitions totaling $13B. In those pre-EMC days, Dell’s acquisition “strategy” primarily focused on the notion of synergy. 

Business Unit Deal Value Close Date
Total (17) $13B
Equal Logic Storage $1.4B Jan 2009
Perot Systems Services $3.9B Nov 2009
SecureWorks Services $600M Feb 2011
Compellent Storage $800M Feb 2011
Force 10 Networking $660M Aug 2011
SonicWall Services $1.2B May 2012
WYSE Servers $1.0B May 2012
Quest Software Software $2.4B Sept 2012
Others Various $1.3B

Before Dell’s successful partnership with Silver Lake that created Dell Technologies, the old Dell Inc. pursued M&A as a means to diversify its portfolio, deliver customer value, and ignite growth. In fact, between 2009 and 2012 alone, Dell completed 17 acquisitions totaling $13B. In those pre-EMC days, Dell’s acquisition “strategy” primarily focused on the notion of synergy. 

Dell-Perot Systems Acquisition 2009

With Perot Systems being the most significant M&A on a dollar basis, Dell believed that Dell and Perot would grow faster combined. “We will leverage Perot’s services capability across Dell’s customer base,” said Michael Dell. “This acquisition makes great sense.”

 

Only it didn’t.

 

The core idea was that Perot could enhance Dell’s ability to bring next-generation data center and virtualization capabilities to customers. And the synergy of the deal was that it created a significant cross-selling proposition. Dell could leverage Perot’s healthcare and government customers to sell more hardware. Perot, which only had 27 percent of its revenue tied to commercial accounts, would get Dell’s enterprise heft.

To be fair, unlike Apple. Dell was very transparent in its rationale and post-acquisition go-to-market strategy. And the Perot acquisition was reminiscent of the era and very similar to the other big computer companies of the day. In 2008 Hewlett-Packard had purchased EDS for $13.2 billion, and IBM ultimately moved entirely into services selling its PC business to Lenovo in 2005.

Post deal closure, I was recruited to lead and execute an integrated portfolio and go-to-market strategy.

Portfolio Integration Kickoff

The Mission

Shortly after the deal closed, I assumed leadership of a global product team that was chartered to build and execute an integrated portfolio and go-to-market strategy. In other words my job was to figure out “how” this was going work.

 

Dell’s legacy services and Perot Systems shared several vital products, services, and structure characteristics. Our services approach was similarly robust, relationship-based business cultures and employees in both organizations recognized for helping customers thrive by using IT for greater effectiveness and productivity. My portfolio integration strategy needed to provide compelling opportunities for improved efficiency and customer benefit.

 

The M&A synergy was that Dell’s global commercial customer base, which spanned large corporations, government agencies, healthcare providers, educational institutions, etc., could benefit and expand through Perot’s broad services capabilities. Assuming we could transform Perot’s extensive existing capabilities into modular services and sell as an attached service, we could operationalize those synergies.

The solution:

Let’s face it; IT Services never get the glory they deserve. Even though most large organizations would quickly grind to a halt without proactive management of networks, applications, and infrastructure, these services were not the sort of products that would get Dell’s hardware-oriented sales teams excited to pitch. Especially given the wide assortment of enterprise hardware, software, consulting, and cloud solutions already in their tool bag. We set out to create a compelling scalable solution that addressed common customer pain points, was efficiently priced (PxQ), and was differentiated. Plus, accelerate quota attainment.

New Dell-Perot Services

Our answer was Remote Infrastructure Management Operation Services

Remote Infrastructure Management Operation Services, or RIMO leveraged Perot’s vast ITO capability to manage servers, storage, and networks; and bundled them into a fixed-scope and SKU’d price offering that could be attached to Dell and multi-vendor Hardware. Moreover, the RIMO service picked up where Dell’s legacy deployment and support services ended. Meaning Dell’s existing ProSupport service detected and resolved issues from the Hardware to the Bios proactively. The Dell-Perot RIMO service would proactively manage the Operating System, Applications, and Capacity management stack.

 

We launched the new portfolio with much fan fare, not to mention beta customer testimonials and sales ready leads. The project came in below budget, and launched Globally on the exact date of our roadmap targets. The offer was full on (GA) general availability, inclusive of all core operation features, despite an early plan which did not include application management.  Incredibly we were even approved for a much coveted quota multiplier and Inside Sales Rep SPIFF.

 

In its first four quarters the RIMO portfolio generated $100M in sales at 40% gross margin (vs. Perot’s legacy 22% GM). On paper the portfolio integration was a success; but with no other synergies there was no sufficient opinc generated to pay for the (or justify) a $3.9B or $2 per share acquisition. After five quarters the portfolio was “end-of-life’d”; and aso was any chance of a successful integration. Dell sellers continued selling computer hardware with attached warranty and support services; and Perot teams continued to pursue low margin custom outsourcing contracts.

"The operation was a success, but the patient is dead."

Where did things go wrong?

Although the overall portfolio integration plan was solid, there were simply to many customer experience and cultural barriers that prevented the our team from being successful.

 

For starters, many Perot mid-level managers believed that Dell would provide a deep wallet of funding to build and scale whatever outsourcing capability and capacity was needed. The obvious problem being the that whole premise of the acquisition was to leverage Perot’s existing breadth of services capability and capacity, not to build it. Next Perot, was an IT Outsourcing provider which built custom IT solutions and business process optimizations for organizations. Therefore the process of building SKU’d standard service offerings was a foreign concept to Perot sellers and customers. There was also a fundamental lack of understanding of the Dell go-to-market machine which created the expectation that Dell sellers would automatically sell packaged Perot IT Services and that Perot sellers would exclusive position Dell Hardware.

 

And finally, when examining both companies from a Customer Experience lens, it is clear the M&A made little sense from a brand and customer experience perspective.

.

Purpose Promise Product Price Proof
Removing cost and complexity to buy, maintain, and operate x86 compute infrastructure. Affordable access to quality x86 Computer Hardware and services, avoiding retail and distribution steps, that offer no customer value Extensive array of Dell x86 Hardware, system management, services, and solution stacks Comparatively affordable PCs, servers, networking, and attached support services. Tactical: Better quality, capacity, and cost when compared to competitor systems with similar features.
Keep pace with rapid change of technology and reduce the increasing cost of IT operations. High integrity and excellent reputation building bespoke Technology Services outsourcing solutions Services for heterogeneous data centers, including planning, data center, and software management Variable solution architecture and pricing models, usually scoped over multi-year outsource contracts. Variable: Comparative analysis Actuals vs. Customer pro-forma Opex / Capex.

The Perot acquisition did not align from an experience model perspective.

The net was Dell’s 5-P, while aligned, no longer drove growth. In examining the 5-P of both organizations, key questions arise. How does this acquisition help Dell solve its core hardware business problems? Do the potential portfolio and GTM synergies pay for the deal? And most importantly, will Dell’s customers be better served by the New Dell? Will Perot’s customers be better served with Dell computers? Were Perot customers thinking, “I wish we had integrated access to Dell PC and Servers”? Were Dell customers really expecting Dell to manage their IT data centers, including competitors’ systems?

Dell-WYSE Technology Acquisition 2012

WYSE is an American manufacturer of cloud computing systems. In 2012 Dell informed the market that it had completed the acquisition of WYSE, renaming the company DELL WYSE. With this acquisition, Dell surpassed Hewlett-Packard in the thin client market.

 

The new Dell Wyse solution portfolio (my role) would include industry-leading thin, zero and cloud client computing solutions with advanced management, desktop virtualization and cloud software supporting desktops, laptops and next generation mobile devices. Much like the Perot acquisition, the synergies between the organizations were expected to accelerate growth for both entities. It was quoted by a Dell executive at the time that “for every thin client hardware dollar that exists in the industry, there’s $5 of enterprise servers, storage, networking services that go along with that.”

The Solution

 

To maximize our portfolio ecosystem we developed three solutions aimed at reducing the complexity of implementing desktop virtualization: 2 “simplified solutions” DVS Simplified Appliance, DVS Simplified Desktop (DaaS), and a more complex DVS Enterprise stack targeting companies that required larger enterprise VDI deployments. The enterprise solution levered a greater breadth of Dell’s portfolio including a choice of Dell PowerEdge server’s packaged with a Dell EqualLogic virtualized storage server, networked Dell PowerConnect switch (capabilities all derived through recent acquisitions).

 

Our portfolio integration plan literally through in everything but the kitchen sink!

 

Where did things go right and wrong?

One the enterprise side things went very well as the more comprehensive and customizable features of the DVS Enterprise solution blended well with the Dell Perot sales motions. The sales enablement plan, from sales and SE and solution architecture training, fit nice within the existing IT Outsourcing tool bag. In the first quarter of launch, several multi-million dollar lighthouse deals were closed driving services, cloud, VDI, enterprise hardware, and thin client product sales.

 

These initial sales not only validated our Dell-WYSE integration strategy, but several other acquisition integrations were buoyed by this early success.

 

That said, sales on the “Simplified” side were less than stellar. The strategy here was that WYSE’s inside, direct, and channel sales agents could position our vDaaS and Simplified DVS Appliance during the thin-client sale, which was very high in transaction volume. The problem with this assumption is that it took a transactional price times quantity (PxQ) motion, and burdened it with a solution element. No matter how “simple” our solution and benefit was packaged, there was no way volume sellers on thirteen week quotas would every slow down to explain the solution pitch.

 

Additionally, the thin-client device purchaser was not in the position of their organizations to make decisions regarding the virtualization infrastructure connecting them, much less understand the technology.

Summary & Lessons Learned

1. Strategic moves like acquisitions of a new business do not help to rejuvenate a dated or poor customer experience model.

 

2. Instead of leveraging M&A for diversifying, consider examining the core experience competencies you have and look if you can apply them to the acquisition of products and services that your current customers value.

 

3. Customer Experience innovation is not a position you can rest on. Competitors will replicate or circumvent your competitive advantage with new experience model innovations.

 

4. Once the experience innovator is No. 1 in a saturated market, the growth potential is equal to the market growth. So there can be no hyper-growth business forever.

 

5. The solution to improve your customer experience model is not to follow your competitors. Also, avoid building a Customer Success operation to improve an already wrong or outdated experience model.

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