As a private company, Dell-EMC will enjoy a freedom HP can only dream of

Much of the deal's value pivots on Dell's ability to leverage EMC's sales force

Michael Dell at Dell World

Dell CEO Michael Dell opens Dell World on Nov. 4, 2014.

Credit: James Niccolai

Dell's US$67 billion acquisition of EMC will give it access to a sales force notorious for its ability to "sell ice to eskimos," while EMC will gain a new foothold among mid-market customers. As a private entity, the combined result will face a freedom from market pressures that competitors such as HP can only dream of.

Those are just some of the benefits that could follow from the deal announced early on Monday.

"This industry is undergoing a fundamental transformation," said Crawford del Prete, an executive vice president with IDC. "You can't navigate it with short-term business decisions."

Trends such as digital transformation, the software-defined data center, the hybrid cloud, converged infrastructure, and mobile and security were among the those cited by Dell and EMC as particularly significant market forces.

Essentially, the acquisition means that "we're going to go into a tunnel on one side as two different companies, and we'll come out at the other end as a very different company," del Prete said.

The combination of Dell and EMC will create the world’s largest privately controlled, integrated technology company, the companies said. The structure of the deal, meanwhile, will "enable the business to make long-term investments without the pressure of quarterly results," said Egon Durban, a managing partner with investor Silver Lake, in a conference call Monday morning.

Dell has already enjoyed some of that freedom since it went private roughly two years ago, including the ability to incubate businesses such as Boomi and SecureWorks, said Dell founder and CEO Michael Dell.

"What we've seen over the last three to five years is that even companies that are continuously, significantly profitable are still getting punished by shareholders," said Charles King, principal analyst with Pund-IT.

In Dell's case, the result was to go private. Now, it's EMC's turn.

"The company is either No. 1 or No. 2 in virtually all the major markets it plays in, and it's consistently profitable, yet its shares have remained in the doldrums," King said.

Much of the deal's value pivots on Dell's ability to leverage EMC's sales force, which is notorious for its aggressiveness and ability to "sell ice to eskimos," del Prete said. "If Dell can leverage that and move ahead with products like Boomi and SecureWorks, that's huge incremental growth."

In the meantime, it's "open season on EMC salespeople," he added. Now that the deal has been announced, Oracle co-CEO Mark Hurd and HP CEO Meg Whitman are likely "calling as many EMC salespeople as they can."

Assuming the deal goes forward, EMC's federated structure could face some tests over the next 18 to 24 months.

VMware will remain a pubic and independent company, but included in EMC are various other pieces as well, including RSA Security, Documentum and Pivotal. Following the acquisition, those pieces may have to "speak" with a more unified voice.

"All of these are different squares of the mosaic," IDC's del Prete said. "I think that on the other side of this tunnel, there's going to be a lot less 'grout' between the tiles."

Executives didn't rule out the possibility of layoffs during the Monday conference call, but they did say no major management changes were expected. Dell has actually added 2,000 new salespeople over the past six months, Michael Dell noted.

Though it's similar in some ways to HP's acquisition of Compaq back in 2002, there's much less overlap between the two companies, King said.

Still, "over the past decade, EMC has built up one of the strongest executive benches in the tech industry, and a lot of those men and women are probably asking themselves what place they'll have in this combined business," he added. "It will be critical for both companies to retain the talent they've spent so much time and money building up."

From a customer perspective, the acquisition could offer access to a broader portfolio of products and services. EMC customers, in particular, could see some attractive deals available to them because of that broader reach, King suggested.

Competitively, HP could suffer the consequences.

"I think you could make the argument that with HP splitting into two companies, this gives Dell/EMC an opportunity to go after those customers," King said. "In many ways, this couldn't have come at a worse time for HP."

The real key to the deal lies in corporate data centers, which are "the digital heart" of most companies but are shrinking in favor of cloud computing services, noted Forrester analyst Glenn O'Donnell.

"Many will highlight how this deal gets Dell very little in the cloud arena," O'Donnell said. "That's true, but companies will continue to buy an enormous amount of EMC products in the future. A shrinking market is not good for public companies, but for a private firm like Dell, that cash flow is delightful."

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