Deals, Data and Dollars

With the possible exception of people who are just getting back from summer vacation on Mars, everyone in or close to the IT industry has been hearing about the bidding war between Dell and HP for 3PAR, a smallish high end storage company.

As of friday, HP came back with a second counter offer for 2 billion dollar, valuing 3PAR at ten times last years revenue. The market closed somewhat higher, suggesting that investors suspect that the bidding war is not yet over....

While the battle is interesting in itself as a spectator sport, it also has the merit of putting the spotlight on several of the big things that are going on in the IT industry this year.

First deal making is back, and with a vengeance. Depending on how one counts, deals are up 60% in the industry, whreas M&A is fairly calm in other sectors.

The ever changing IT industry is in one of its periodic shake-ups, driven by changes in demand, applications, technologies and business models. In the shifting competitive landscape, big players are bulking up and filling holes in their product offerings through (mostly) digestible acquisitions, making their portfolios more attractive to large users. Following the example of IBM, companies like HP and Dell - with important but commoditised products like PC·s and printers - are trying to rebalance their mix towards higher margin businesses such as high end enterprise infrastructure, software and services.

Acquisition can also be an interesting opportunity for the target, and not just its shareholders. In this environment, the objective is not cost cutting but business development. The main downside risks are borne by the shareholders of the acquiring company : on the one hand, possibly overpaying, on the other, letting a good opportunity fall into the hands of a dangerous competitor.

The second big thing is that data volumes are exploding.

A few examples. Corporate users are collecting enormous amounts of data to track and meet customer needs, and historical data continues to pile up year on year. On their side, consumers are storing huge amounts of multi-media data in the cloud with service providers. And of course Google continues its efforts to map and digitalise the entire world if not the entire universe.

As a side note, something of the same thing is happening in the world of HPC. New extreme processing power makes possible new simulation applications, which in turn require massive data storqge.

All of this means that data storage has become a really big enterprise and service provider problem. For a full analysis as to what 3PAR can conribute, check out Emmanuel·s note on this site at http://www.duquesnegroup.com/Rachat-de-3PAR-pourquoi-HP-est-interesse_a144.html

Third big thing : unlike some other sectors, many IT companies have amassed huge cash piles as a buffer during the recession. Leaders can also tap the bond market for additional financing at very low interest rates.

In today·s economic environment, keeping cash on hand promotes peace of mind but pays almost nothing, so investing some makes sense.

Coming back to the 3PAR battle, despite HP·s much larger size, the two companies are fairly evenly matched in terms of cash. HP has around 14.7 billion while Dell has 12.4 billion.

This battle may rage on.