HP M&A Hunt Should Concern Channel Partners

  • Tweet  
  • LinkedIn  
  • Facebook  
  • Google plus  
  • Send to Kindle
  • Send to  

HP is giving up on growth this year and is on the M&A hunt to acquire companies and technologies to fill gaps in its portfolio. The notion HP could snap up some interesting companies should concern channel partners, as it could disrupt what may be already productive relationships.

meg whitman hewlett packardHewlett-Packard Co. is in the M&A hunt for new technologies. After yet another disappointing earnings report in which sales declined and profits increased mostly due to cost cuts, HP is looking to buy new technologies to fill gaps in its product portfolio and increase sales opportunities. The renewed HP M&A hunt should set off alarms in the channel.

Whitman admits HP doesn't have a good track record for capitalizing on mergers and acquisitions. It spent more than $25 billion in acquiring EDS, Palm and Autonomy only to see these major assets wither. Smaller acquisitions are having mixed degrees of success, but many remain too small to make a difference on the general HP balance sheet.

Related articles

HP isn’t foolish. It has $13.5 billion in the bank -- plenty of cash to make a number of deals. Whitman isn’t looking for another mega-deal like the 2003 Compaq merger, a she isn't looking to repeat the folly of the Autonomy acquisition. Instead, HP wants smaller, strategic deals, such as the 2010 $1.5 billion deal for cloud storage vendor 3Par.

“Acquisitions will become part of our future, to further some of our strategic initiatives and shore up some of the product holes. … We don’t need a $5 or $6 billion acquisition. I think there are acquisitions in the $100 million to $300 million range, maybe some up to $1 to $1.5 billion that we might be interested in,” said Whitman on this week’s earnings call.

This measured approach shouldn’t bring comfort to the channel or general market. Billion-dollar acquisitions snap up young-but-growing vendors delivering innovative, valuable technologies. Solution providers like these vendors not just because they have good products, but also because they get more attention bringing those products to market. Solution providers can build business plans, develop resources and form strategic direction around such companies.

When acquisitions take these companies out of the game, solution providers' plans and operations are disrupted. All of a sudden, their free-flow of collaboration with a nimble vendor is transformed by the bureaucracy of the larger acquirer.

This is what happened when McAfee Inc. bought Secure Computing. After paying nearly a half-billion dollars for the firewall vendor, McAfee wanted to capitalize on its new assets by quickly merging Secure Computing’s channel into its own. The result was a major disruption in the Secure Computing channel. The transition didn’t go smoothly, and many partners didn’t want to work with McAfee.

This the reason why most vendors that acquire companies with strong channels often allow autonomous operations during an extended integration and assimilation effort. But even this isn’t enough of a buffer. Sometimes, just the association with the larger acquiring brand is enough to turn off customers and disrupt operations.

And this is what happened when Dell bought SonicWall. Dell was smart about not rushing the integration of SonicWall’s 15,000 partners into its PartnerDirect program. Nevertheless, large numbers of SonicWall partners expressed concern about what it would be like to work with Dell. Some defected to alternative suppliers.

Such concerns wouldn't be as bad if HP were in better shape. Just a few years ago, HP’s brand was widely desired, and the company could use its market presence to quickly capitalize on new acquisitions. That’s not the case today; the weakened HP needs to convince partners and customers it’s worth working with. This will make any transition tricky.

Whitman’s intention to avoid big deals and make strategic acquisitions comes with a bit of irony. While HP may gain strategic assets for bolstering its capabilities, such acquisitions are unlikely to make a positive difference in the company’s health. With regards to companies the size of HP, a business unit need to generate at least $1 billion to be taken seriously -- much less make a difference in the overall company’s health. A $100 million or $300 million acquisition would pick up very small companies that won’t even appear on the HP radar.

Again, HP isn’t oblivious to its M&A history. Whitman promised discipline in any acquisition made by the company.

"We will be incredibly measured and disciplined. We are very mindful of the event that we just came off with Autonomy, so don't worry about that," she said on the earnings call. "As we see these big tectonic plate shifts, there's no question that acquisitions are going to have to be a part of how we turn this company around."

HP's spending sprees are unavoidable, as are the potential disruptions they could cause. Solution providers should brace themselves for the aftereffects of any deal coming down the pike.

 

  • Tweet  
  • LinkedIn  
  • Facebook  
  • Google plus  
  • Send to Kindle
  • Send to  
More on Channel Business
Backbytes - a happy computer

Perk up! HP opens up former direct-only perks to the channel

Latest ServiceOne partner program released as Q4 results disappoint

Two men shake hands

Public offering: Ingram Micro and VMWare release new partner program

Public sector partners to benefit at no cost

learn-chalkboard

Watch and learn: Brocade EMEA merge watched carefully by U.S. arm

Benefits of channel and OEM business merge apparent in EMEA and APAC

Clouds jigsaw

More to channel life than cloud - Microsoft

Firm's UK channel lead says hybrid solutions may be the answer for many

Visitor comments
Add comments
blog comments powered by Disqus
In-depth
employee-challenges

Challenge accepted: Lenovo moving to single PC-server channel post x86 takeover

Lenovo aims to capitalize on the x86 server products it acquired from IBM by consolidating product sales under one channel. It sounds good in theory, but Lenovo has more challenges in its server ambitions than its channel structure

Jarrett Miller

Vendor Q&A Series: Jarrett Miller, Bromium

The latest channel exec to sit in the Channelnomics hotseat is Bromium's VP of global channel sales

John Schweizer - DataStax

Vendor Q&A Series: John Schweitzer, DataStax

Our latest exec to sit in the Channelnomics hotseat is John Schweitzer, executive vice president, worldwide field operations at DataStax

digital-hugging

CA embraces channel to build Application Economy

CA is shaking off its record of channel ambivalence to embrace partners’ capabilities to reach and service customers’ evolving and dynamic needs in the unfolding ‘Application Economy’