Lessons from the HP-Dell Bidding Duel

Hewlett-Packard showed no signs of disorientation or cowardice once it engaged with Dell in the battle over 3Par, a cloud storage specialist. After 10 days of bidding and counteroffers, HP emerged with the prize, and Dell was left to contemplate its next move in building out enterprise and business-to-business offerings.

What can we in the channel learn from this bidding war? Storage is hot, but that’s too easy. The bigger lesson is mergers and acquisitions are a tool for accelerating growth and blunting competition.

HP paid $33 per share for 3Par. That’s a whopping 83 percent above the price 3Par stock was trading at prior to the initial Dell bid $18 per share bid, which was considered a good price for the company. Is 3Par, a relatively unknown storage vendor, worth the $2.35 billion HP is paying for it? The complex answer is yes and no.

No, 3Par is not going to generate a measurable return in revenue to HP any time soon. With $192 million in annual revenue today, it’s unlikely that 3Par will produce a bump in EBITDA (earnings before interest, taxes, depreciation and amortization), a critical financial measure sought by big business and Wall Street Investors. Over the long haul, 3Par will add technology capabilities to the HP portfolio that will likely result in new products and services that increase revenue – but that’s a long ways off.

Yes, 3Par is good for HP because it blunts Dell. Had Dell gotten 3Par at the initial price of $1.1 billion, it would have gained critical capabilities at a reasonable price that would have made it more competitive in cloud computing, storage and enterprise data center business segments. By outbidding Dell, HP is denying its long-time rival of a cherished prize, forcing Dell to seek its growth somewhere else. The move will surely keep HP ahead of Dell, at least for the time being.

Underlying the advantages and disadvantages of the HP-Dell deal is both companies’ true intent: growth. Both companies are growing – depending on the discreet technology segments. But even double digit growth in PCs, storage and services – especially if the base is inconsequential – is meaningless if it doesn’t add up to rapid expansion. Oftentimes the only way to achieve this type of hyper growth is through acquisitions. You buy your way into new technologies and markets. You acquire new talent and resources. And you get earn new customers.

What HP gets for its $2.35 billion is peace of mind, new markets, new customers and, ultimately, new potential for growth.

Mergers and acquisitions are a risk. In fact, most mergers fail to achieve their intended post-integration results. However, they often do provide the benefit of new revenues, markets and customers, which makes the initial price worth paying.

The underlying lesson from the HP-Dell duel is that businesses intent on growth cannot succeed on organic growth alone. They must develop an acquisition strategy for seeking out and capturing complementary businesses that will fill out their portfolio of capabilities, technologies and products.